The dollar has slipped in recent weeks, as investors have become increasingly convinced the Fed could start cutting rates as early as March

The dollar edged lower on Thursday as traders awaited U.S. inflation data to confirm whether bets on as many as five Fed interest rate cuts this year were justified, while weak Japanese wages data sent the yen to a six-week low against the euro.

Bitcoin neared $47,000, trading near a two-year high, with investors welcoming the much-expected U.S. approval of spot bitcoin exchange-traded funds (ETFs).

The approval opens the way for institutional buying and had been priced in over recent months, driving the crypto currency 70% higher since mid-October.

The main event for the currency market on Thursday is monthly U.S. consumer inflation, which economists expected to have slowed again in December.

The dollar has slipped in recent weeks, as investors have become increasingly convinced the Federal Reserve could start cutting rates as early as March – an expectation many in the market see as excessive.

It is a bit like an errant school child runs away with itself and gets carried away and needs to be reined in as the data comes out, CMC Markets chief markets strategist Michael Hewson said.

For me, the market is thinking way too far ahead. Yes, rate cuts are coming, that is pretty much a given. But do I really think the Federal Reserve is going to reduce rates in March, unless there is a problem in the banking sector or the commercial real estate sector in the US? Then, they might be forced to do something like that, he added.

The dollar index, which staged a strong rally last week, was last 0.1% lower on the day.