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The dollar was eyeing a fourth monthly loss on Tuesday as investors reckon a peak in U.S. interest rates could swing into view as soon as this week's Federal Reserve meeting.

Currency trade was subdued in the lead up to Wednesday's Fed rate decision, and ahead of Bank of England and European Central Bank rate decisions on Thursday, though cautiousness across financial markets gave the greenback a bit of support.

The euro wandered as far as $1.0913 on Monday after data showed Spanish inflation running surprisingly hot in January, though the broader mood has reeled it back to $1.0845.

The common currency is up 1.3% this month and is loitering near a nine-month peak. The U.S. dollar index is down 1.3% for January so far and held at 102.28 on Tuesday.

The Japanese yen fell 0.4% overnight but was steady at 130.26 in Asia and is set for its third monthly gain as markets anticipate shifts in monetary policy.

Sterling and the Australian, New Zealand and Canadian dollars also made overnight losses but are set for monthly gains.

The Aussie fell 0.7% overnight, but at $0.7036 it is up about 3.2% for the month so far. The kiwi, last at $0.6474, is up more than 1.5% for January. [AUD/]

"Technically I think they're looking a little bit tired," said Tony Sycamore, an analyst at brokerage IG Markets in Sydney, referring to currencies rallying against the dollar, with investor caution and month-end dollar buying also contributing to their loss of momentum in the Asia session.

Interest-rate futures indicate market expectations for a 25 basis point (bp) hike from the Federal Reserve to take the Fed funds rate window to 4.5%-4.75%. Pricing suggests two more 25 bp hikes are expected, before cuts later in the year.

"Traders will need to marry the tone of the statement and (Fed chair Jerome) Powell's press conference with this pricing structure," said Chris Weston, head of research at broker Pepperstone in Melbourne.

"In the less likely outcome that the Fed give the impression that they could pause after this week's hike, then the U.S. dollar could easily sell off and risky assets rally."

Markets mostly shrugged off slightly better-than-expected Chinese manufacturing data, which showed a welcome return to growth in January, with focus now on the recovery ahead.

Australia also sounded a bit of a warning on consumption, with retail sales logging their biggest drop in more than two years last month in a sign that rate hikes are biting. Traders slightly pared rate expectations on the news.

A preliminary reading for euro zone gross domestic product is due later in the day, while across the Atlantic U.S. employment cost data will also be closely watched because the labour market can guide monetary policy.

"It is probably too late to have too much influence on the ultimate size of the widely expected 25bp rate hike that is due to be announced on Wednesday," said NatWest Markets' U.S. rates strategist Jan Nevruzi. "But results from the report will play a big role in the tone Powell uses in his press conference."

Bitcoin, up nearly 40% in January to $22,865, is set for its best month since October 2021.

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Currency bid prices at 0521 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0842 $1.0852 -0.08% +0.00% +1.0860 +1.0840

Dollar/Yen

130.2600 130.4600 -0.12% +0.00% +130.5200 +130.0750

Euro/Yen

141.23 141.53 -0.21% +0.00% +141.6200 +141.1700

Dollar/Swiss

0.9250 0.9251 +0.00% +0.00% +0.9255 +0.9240

Sterling/Dollar

1.2342 1.2349 -0.08% +0.00% +1.2370 +1.2332

Dollar/Canadian

1.3409 1.3385 +0.18% +0.00% +1.3415 +1.3380

Aussie/Dollar

0.7037 0.7061 -0.32% +0.00% +0.7064 +0.7027

NZ

Dollar/Dollar 0.6450 0.6469 -0.32% +0.00% +0.6479 +0.6440

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ