The greenback’s rally was underpinned by a bounce back in U.S. Treasury yields as traders reduced their expectations of the pace and scale of Fed cuts this year

The dollar was stable on Monday ahead of a key U.S. inflation figures later in the week for further clarity on the Federal Reserve’s monetary policy outlook, after markets got off to a hesitant start to the year as rate cut bets were reduced.

The yen struggled near the 145 per dollar level pressured by a broad jump in the dollar, while the Australian and New Zealand dollars were nursing losses having dropped sharply last week amid cautious risk sentiment.

Trading was thinned in Asia with markets in Japan closed for a holiday.

Against the yen, the dollar advanced 0.05% to 144.67, extending its gain from last week when it climbed 2.6% on the Japanese currency, its best weekly performance since June 2022.

The kiwi rose 0.1% to $0.6248, after having slipped 1.2% last week. The dollar index steadied at 102.38.

The greenback’s rally was underpinned by a bounce back in U.S. Treasury yields as traders reduced their expectations of the pace and scale of Fed cuts this year.

A reading on U.S. inflation due on Thursday could again alter those views, after figures on Friday showed U.S. employers hired more workers than expected in December while raising wages at a solid clip, pointing to a still-resilient labour market.

Nevertheless, a separate survey out the same day showed the U.S. services sector slowed significantly last month, with a measure of employment declining to the lowest level in nearly 3-1/2 years, painting a mixed picture of the world’s biggest economy.

On balance, the key labour market themes remain in place. The labour market is no longer as tight as it was earlier in the recovery as indicated by slower job growth, less turnover and slower wage gains, said economists at Wells Fargo.

That said, job growth remains solid on an absolute basis even if it has slowed on a relative one, and the low level of layoffs remains encouraging, they said.

We suspect the FOMC (Federal Open Market Committee) will keep the Fed funds rate unchanged over the next few months as it awaits additional confirmation that inflation is durably on its way to 2%, they added.

Market pricing now shows a nearly 64% possibility that the Fed could begin easing rates as early as March, compared to a nearly 90% chance a week ago, shows the CME FedWatch Tool.