The dollar index stayed near a five-month low of 101.42 touched last week, and was last at 101.65

The dollar was trying to find a floor on Tuesday in holiday-thinned trade, pressured by signs that inflation in the world’s biggest economy is cooling that will likely give the Fed room to cut interest rates next year.

The yen meanwhile stabilised near its recent five-month high on the prospect that the Bank of Japan (BOJ) could soon mark an end to its ultra-easy policy. For most of 2022 and 2023, the policy has kept the Japanese currency under pressure as other major central banks across the world embarked on aggressive rate-hike cycles.

Currency moves were largely muted in the day after Christmas, with markets in Australia, New Zealand and Hong Kong still out for the Boxing Day public holiday.

Against the dollar, the euro slid 0.06 per cent to $1.1019, but was not too far from a more than four-month high of $1.1040 hit last week.

Sterling was little changed at $1.2701, while the Australian and New Zealand dollars were near their recent five-month highs.

The dollar index stayed near a five-month low of 101.42 touched last week, and was last at 101.65.

Data released on Friday showed U.S. prices dropped in November for the first in over 3-1/2 years, pushing the annual rise in inflation further below 3 per cent and boosting market expectations of an interest rate cut from the Federal Reserve next March.

The figures came a week after Fed policymakers opened the door to rate cuts in 2024 at the central bank’s final policy meeting for the year, a move that led the dollar down.

The Fed has made considerable progress on inflation, as core started the year near an annual rate of 5 per cent, though the job is not yet done in ensuring inflation is on a sustained trajectory toward its 2 per cent target, Wells Fargo analysts said in a note.