The U.S. dollar index, which measures the dollar against a basket of six currencies, was 0.26% higher at 102.57

The dollar rose against the euro and yen on Tuesday as traders awaited inflation data on Thursday for clues on when the Fed is likely to cut rates.

In crypto currencies, bitcoin slipped but remained near its strongest level since April 2022 as expectation mounted the SEC will imminently approve spot bitcoin ETFs.

The dollar index had touched a five-month low in December when investors priced for the possibility that the Fed will cut rates sooner rather than later as inflation eases closer to its 2% annual target and economic data shows signs of softness.

It has recovered from some of that weakness this year, with the sell-off seen by some as overdone heading into year-end. But Fed expectations are likely to continue to drive dollar moves.

Throughout December the theme was really the Fed pivoting amidst softer data, said Bipan Rai, North American head of FX strategy at CIBC Capital Markets.

At this point we are pricing in a significant amount of easing from the March meeting and the risk/reward is tilted to a degree. Maybe there are some market participants out there that look at what’s priced in and are easing up on their dollar shorts that were initiated in December, he said.

The release on Thursday of the consumer price inflation report for December will be the main piece of economic data this week. It is expected to show headline inflation increased 0.2% in the month and by 3.2% on an annual basis.

If the data confirms that inflation is continuing to moderate it could bolster expectations for a March rate cut, though if it comes in above expectations it could also reverse some of that pricing.

Fed funds futures indicate a 64% chance of a March rate cut, down from 70% a week ago, as per the CME Group’s FedWatch Tool.

The U.S. dollar index, which measures the dollar against a basket of six currencies, was 0.26% higher at 102.57.

The euro shed 0.23% to $1.09250, while sterling declined 0.39% to $1.26990.

In Asia, data on Tuesday showed core inflation in Japan’s capital slowed for the second successive month in December, taking some pressure off the Bank of Japan to rush into exiting ultra-loose monetary policy.

The dollar was up 0.25% at 144.54 yen.

In crypto currencies, Bitcoin dropped 0.26% to $46,874, after touching a 21-month high of $47,281 on Monday.