SINGAPORE: The dollar was restrained on Friday by uncertainty over the path of U.S. interest rates, while the euro held overnight gains as data hinted that the downturn in the euro zone may be easing.

With U.S. markets closed on Thursday and due for a shorter trading session on Friday for Thanksgiving, currencies are likely to trade narrowly but with some volatility as liquidity is expected to remain thin.

The dollar index, which measures the U.S. currency with six peers, eased 0.029% to 103.73, staying close to the two-and-a-half month low of 103.17 it touched earlier this week.

The index is down 2.8% for the month, on course for its weakest monthly performance in a year on rising expectations that the Federal Reserve is done raising interest rates and could start cutting rates next year.

Markets have dialled back expectations of Fed rate cuts in 2024, with futures now showing a 26% chance that the Fed cuts its target rate at the March 2024 policy meeting, according to CME Group's FedWatch tool. That compares with a 33% chance last week.

The euro stood at $1.0904, having risen 0.16% overnight after a series of preliminary surveys showed recession in Germany may be shallower than expected, which offset a downbeat reading of French business activity.

Meanwhile, Japan's core consumer price growth picked up slightly in October, after easing the previous month, reinforcing investors' views that stubborn inflation may push the Bank of Japan (BOJ) to roll back monetary stimulus before long.

ING economists said they expect the BOJ to move away from its super-accommodative stance next year.

"We believe that the BOJ may scrap the yield curve programme as early as the first quarter of next, as Japanese government bonds appear to have stabilised ... then begin its first rate hike in Q2 2024 if wage growth continues to accelerate next year."

The Japanese yen strengthened 0.04% to 149.49 per dollar. The Asian currency has slowly crawled away from the near 33-year low of 151.92 it touched at the start of last week and is up 1.5% for the month.

Japan's factory activity shrank for a sixth straight month in November, while modest growth in the service sector was little changed, a business survey showed on Friday, highlighting the fragility of the economy amid soft demand and inflation

Sterling was last at $1.2539, up 0.05% on the day.

The Australian dollar rose 0.14% to $0.657, while the kiwi rose 0.07% to $0.605.

Cash Treasuries resumed trading in Asia after Japan's holiday on Thursday, with the yield on 10-year Treasury notes up 2.9 basis points at 4.445%.

The yield on the 30-year Treasury bond rose 2.8 basis points to 4.576%.

(Reporting by Ankur Banerjee in Singapore; Editing by Jacqueline Wong)