TOKYO: The dollar traded on the back foot on Tuesday, as markets looked ahead to a week of key U.S. economic data that will provide fresh signals on how soon the Federal Reserve may begin cutting interest rates.

The yen firmed slightly after figures showed consumer inflation stayed at the Bank of Japan's 2% target, rather than dipping below it for the first time in nearly two years, as economists had forecast.

The U.S. dollar index, which measures the currency against a basket of peers including the yen and euro, traded flat at 103.78 early in Asian time, following a 0.17% slide on Monday.

Markets have all but ruled out a cut at the Fed's March meeting and have recently pushed back expectations for a cut to June from May, CME's FedWatch Tool showed, following strong U.S. consumer and producer price data.

U.S. durable goods data is due later on Tuesday, while January's U.S. personal consumption expenditures price index, which is the Fed's preferred measure of inflation, will be released Thursday.

"A still softish DXY (dollar index) doesn't quite convey the USD's story right here ... and, if anything, key upcoming event risk can potentially fuel another leg up," Westpac's head of FX strategy, Richard Franulovich, wrote in a note.

"The bulk of DXY's gains this year have unfolded over just a handful of marquee sessions, and outside that it has been decidedly consolidative," he said. "The lacklustre DXY in recent days looks mostly like a continuation of that profile."

The Australian and New Zealand dollars sagged. The Aussie lost 0.1% to $0.6533, continuing its decline from Thursday's three-week high of $0.6595.

The kiwi eased 0.2% to $0.6161, after touching the highest since Jan. 15 at $0.6218 on Thursday.

Traders are gearing up for what could turn out to be a significant policy meeting by the Reserve Bank of New Zealand (RBNZ) on Wednesday. Markets are pricing in a one-in-three chance the RBNZ will raise its 5.5% official cash rate to combat stubborn inflation.

Cryptocurrency bitcoin hugged a more than two-year peak of $54,969 hit overnight, after enterprise software firm MicroStrategy Inc announced it had bought about 3,000 more of the tokens.

The dollar slipped 0.1% to 150.54 yen as a slightly hotter-than-expected reading for Japan's January consumer price index (CPI) kept the BOJ on track to exit negative interest rate policy as soon as next month.

The euro was little changed at $1.0847, and sterling was flat at $1.26825.

 

(Reporting by Kevin Buckland Editing by Shri Navaratnam)