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

The yen meanwhile steadied near its recent five-month peak 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 globally 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 greenback, the euro slipped 0.06% to $1.1019, but was not too far from a more than four-month top of $1.1040 hit last week.

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

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

Data released on Friday showed U.S. prices fell in November for the first in more than 3-1/2 years, pushing the annual increase in inflation further below 3% and boosting market expectations of an interest rate cut from the Fed next March.

The reading 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 drove the dollar lower.

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

In Asia, the yen rose 0.1% to 142.20 per dollar, drawing additional support from comments by BOJ Governor Kazuo Ueda, who signalled the possibility of a policy shift.

Ueda said on Monday the likelihood of achieving the central bank's inflation target was "gradually rising" and it would consider changing policy if prospects of sustainably achieving the 2% target increase "sufficiently", though he said the BOJ had not decided on a specific timing to change its ultra-loose monetary stance.

"BOJ Governor Ueda did not provide any policy guidance in his speech yesterday, though he was hopeful that Japan was finally getting out of the low-inflation environment," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

A slew of data out on Tuesday showed Japan's jobless rate was unchanged at 2.5% in November from the previous month, while business-to-business service inflation was steady at 2.3% last month.

Elsewhere, the kiwi gained 0.1% to $0.63145, while the Aussie last bought $0.68065.