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 The dollar was perched near a three-month high on Thursday as Federal Reserve Chair Jerome Powell's message that interest rates would have to go higher and possibly faster to tame inflation dominated sentiment and kept the U.S. currency in bid.

In the second day of his testimony to Congress on Wednesday, Powell reaffirmed his hawkish message, though struck a cautious note that debate on the scale and path of future rate hikes was still underway and would be data-dependent.

That caused the U.S. dollar to pause its towering rally from earlier in the week, retreating from close to a three-month top against the Japanese yen to last stand at 136.86.

The euro and sterling similarly edged away from their multi-month lows, rising 0.02% to $1.0546 and 0.09% to $1.1854, respectively.

As a result, the U.S. dollar index, which measures the greenback against a basket of six peers, slipped 0.02% to 105.61.

The index, however, remained near a three-month peak of 105.88 hit in the previous session, having extended Tuesday's 1.3% surge, its biggest daily jump since last September.

"Powell conceded that the March decision is data-dependent," said Thierry Wizman, Macquarie's global FX and rates strategist. "The question facing us, therefore, is whether January's economic reacceleration was a blip or a trend."

A slew of strong economic data out of the United States in previous weeks, pointing to persistent inflationary pressures, led to Powell saying on Tuesday that the Fed will likely need to raise interest rates more than expected, and was prepared to move in larger steps.

Traders scrambled to reprice a more aggressive pace of interest rate hikes in the wake of Powell's comments, with Fed funds futures now implying a 70% chance the Fed will raise rates by 50 basis points this month, up from just about 9% a month ago.

U.S. rates are also seen holding above 5.5% through to the end of the year.

Conversely, the Bank of Canada on Wednesday left its key overnight interest rate on hold at 4.50%, becoming the first major central bank to suspend its monetary tightening campaign.

The Canadian dollar stood at 1.3808 per U.S. dollar on Thursday, after having weakened to a more than four-month low in the previous session following the decision.

The Australian dollar was likewise kept under pressure for a similar reason, falling 0.06% to $0.6586 in Asia trade, after Reserve Bank of Australia Governor Philip Lowe on Wednesday said the central bank was closer to pausing on rate hikes and suggested a halt could come as soon as April.

"Lowe seemed open to a growing divergence in the path of monetary policy between Australia and the U.S.," said Belinda Allen, senior economist at Commonwealth Bank of Australia.

Elsewhere, the kiwi rose 0.03% to $0.6107, having slumped to a near four-month low in the previous session.

The Chinese offshore yuan languished near the key psychological level of 7 per dollar, and was last at 6.9657, ahead of Chinese inflation data due later on Thursday.