(Updates at 1215 GMT)
The dollar edged higher on Monday as a holiday in most major Asian markets subdued the start of what could turn into a busy week, with all eyes on U.S. inflation data for clues on when the Federal Reserve may start to cut rates.
The euro was down 0.14% $1.0769, edging off a 10-day high touched in early trading after the past week saw a small bounce back following steady declines in 2024 EUR=EBS . A reading of the euro zone's economic growth in the fourth quarter on Wednesday could offer fresh direction.
The pound dropped 0.1% to $1.2632, GBP=D3 though the Japanese yen strengthened a touch to 149.01 per dollar JPY=EBS as the approaching release of U.S. CPI data for January on Tuesday capped moves.
Changing expectations of when and how quickly central banks will cut interest rates as inflation falls are a significant driver of currency markets at present.
Strong jobs data this month has largely taken a March Federal Reserve rate cut off the table, with markets currently seeing a move in May as more likely than not.
The U.S. data also caused market pricing for the first European Central Bank rate cuts to be pushed back, even though European economic data has been much less strong.
That lack of divergence between both the Fed and ECB and the Fed and other central banks has prevented the dollar moving significantly higher, said Simon Harvey, head of FX analysis for Monex Europe, and left the currency largely range bound, until the situation changes.
"In the interim we keep floating around, and US CPI will determine how the dollar trades within those ranges," he said.
CORE CPI Analysts expect U.S. core CPI to come in at 0.3% month on month in January, but a still elevated 3.8% year on year.
Bank of Italy governor Fabio Panetta said on Sunday the moment is "fast approaching" for the ECB to cut rates, but the market reaction was limited in both currencies and government bonds.
ING analysts said that Panetta is "the most dovish voice in the (ECB's rate setting) Governing Council", and that his remarks differed not only from the hawks warning against cutting too early but also from other doves.
Hawks in central bank speak typically favour tighter monetary policy than do doves.
Elsewhere, there is plenty of data due this week in Britain including inflation and GDP numbers, with the former, on Wednesday, similarly likely to influence opinion on when the Bank of England will start to cut interest rates - it is currently seen lagging the Fed and European Central Bank.
"Net, we think the data will be negative for sterling, a lot of the headlines will be around recession, and the uptick in inflation pressures," said Harvey.
Markets are also keeping an eye on the highly rate-sensitive Japanese yen, which strengthened sharply late last year as markets priced in early U.S. rate cuts, but has since weakened as that timing got pushed back.
Japanese Finance Minister Shunichi Suzuki said on Friday that authorities were closely watching FX moves.
"Dollar/yen is likely to be driven mainly by U.S. developments in the near future, but intervention warnings are likely to increase in frequency around the 150 level," said Barclays analysts in a note.
Japanese authorities intervened in late 2022 to prop up the yen, which weakened to as much as 151.94 per dollar.
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