TOKYO, Feb 9 ― The dollar stayed in a holding pattern today, a day before the release of US consumer price data that may offer new clues on the pace of Federal Reserve policy tightening.

The euro seemed to find a base following its retreat from an almost three-month top after European Central Bank President Christine Lagarde earlier this week dialled down expectations of aggressive interest rate hikes.

The Australian dollar got a bit of a lift as continued gains in global stocks boosted the mood for risk taking.

The euro was virtually flat at US$1.14195 (RM4.77), following its gradual retreat from a peak of US$1.1483 on Friday, which matched the highest level since November 11.

“We consider pricing for near-term ECB rate hikes is too aggressive,” giving the euro “modest downside potential” against the dollar, Commonwealth Bank of Australia strategist Kimberley Mundy wrote in a report, adding that a likely support level lies at US$1.1235.

The dollar index ― which gauges the greenback against six major peers, including Europe's single currency ― was also little changed at 95.587, after bouncing off a 2-1/2-week low of 95.136 reached Friday. It touched the highest since June 2020 at 97.441 at the end of last month.

A more hawkish tone from both the ECB and the Fed last week caught markets off guard and sent yields soaring on euro zone and US debt in anticipation rates could rise faster and higher than previously expected.

Lagarde said on Monday there was no need for extensive tightening, trying to temper rising expectations for aggressive action after she last week opened the door to a potential rate rise this year.

The dollar index is “in a holding pattern while markets weigh up the prospect of an abrupt Fed policy tightening against the ECB's hawkish backflip,” Westpac strategists wrote in a client note.

Although a more hawkish ECB will keep a lid on the dollar index's gains near-term, its “medium-term bull trend is still intact,” and is a buy on dips to the low 95 level, they wrote.

For the US central bank, markets are pricing in more than a 70 per cent chance of a 25 basis point hike and a nearly 30 per cent chance for a 50 basis point hike when policymakers meet in March, according to CME's FedWatch Tool.

High US inflation may go even higher before getting better, San Francisco Fed President Mary Daly said yesterday.

Consumer prices probably climbed 7.3 per cent year-over-year in January, economists polled by Reuters predict US data will show tomorrow.

The dollar briefly touched a one-month high versus the yen today, boosted by a climb in Treasury yields to multi-year peaks overnight.

The dollar hit ¥115.69 before pulling back to last trade about flat at 115.50.

The Aussie added 0.17 per cent to US$0.7156, while sterling added 0.07 per cent to US$1.3555. ― Reuters