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The U.S. dollar edged to the highest level this month against the yen on Tuesday as traders looked ahead to a reading of U.S. inflation due the following day for further clues on the path of Federal Reserve policy.

The Australian dollar held its ground heading into a central bank interest rate decision later in the day, after the currency rebounded on Monday from a four-month low.

The U.S. dollar added 0.16% to 151.45 yen as of 0121 GMT, and earlier touched 151.55 for the first time since Nov. 28.

While markets have priced in a quarter-point Fed rate cut on Dec. 18 as a near certainty, the consumer price index due on Wednesday could shine some light on how much room policymakers have for easing next year.

Data on Friday showed U.S. job growth surged in November, but a rise in the unemployment rate to 4.2% pointed to an easing labor market that should allow the Fed to cut interest rates again this month.

One of the "critical market themes" currently is "the risk of persistent inflation and fewer Fed cuts next year," said Kyle Rodda, senior financial markets analyst at Capital.com.

Over in Australia, although the broad consensus is for no change to policy, "there's the chance of a change in guidance after last week's GDP data revealed the moribund state of Australia's economy," Rodda said.

An alteration to the "critical phrase" in the policy statement that the bank "isn't ruling anything in or out" to "something less neutral" could bring pricing for a first rate cut forward to as early as February, Rodda said.

Traders are nearly fully priced for an April cut currently, while a move in February instead is seen as a coin toss.

The Aussie receded 0.23% to $0.6427. That followed a 0.8% climb on Monday after top trading partner China pledged an "appropriately loose" monetary policy next year. The currency touched the lowest since Aug. 5 on Friday at $0.6373.

The New Zealand dollar sank 0.33% to $0.5846, after advancing 0.57% in the previous session.

The euro slipped 0.05% to $1.0549, while sterling inched 0.03% lower to $1.2748.

The U.S. dollar index, which measures the currency against the euro, sterling, yen and three other major peers, gained 0.06% to 106.22.

Beyond U.S. CPI, the main events of interest for investors this week are the European Central Bank meeting on Thursday, where a quarter-point cut is baked in, and China's closed-door Central Economic Work Conference.

The yuan was flat at 7.2667 per dollar in offshore trading.

Elsewhere, the Bank of Canada and the Swiss National Bank decide policy on Wednesday and Thursday, respectively, with deep rate cuts expected from both.

Against Canada's looney, the U.S. dollar edged 0.03% higher to C$1.4177, keeping it close to its strongest level since April 2020.

The U.S. currency was little changed at 0.87905 Swiss franc.