- "In our view, the Fed stance is still extremely dovish, and this fundamentally holds back the bullish-USD story", OCBC Treasury Research analysts wrote.
Malaysia shares pared gains on Thursday as its economy fell at a faster-than-expected pace in the fourth quarter, while other emerging Asian markets were muted in thin trade, with multiple countries already shut for the Lunar New Year holidays.
The Kuala Lumpur benchmark, which had climbed as much as 0.4% earlier in the session, was trading flat by 0421 GMT.
Malaysia's economy contracted 3.4% year-on-year in the December quarter, falling for a third straight quarter and faster than the 3.1% decline forecast in a Reuters poll.
Strict coronavirus-related restrictions hurt domestic consumption and slowed the pace of recovery, the central bank said, pushing the economy to its the worst annual performance since the 1998 during the Asian Financial Crisis.
However, growth will rebound going into 2021, supported by a pickup in global demand and normalisation in domestic economic activities, said Bank Negara Malaysia governor Nor Shamsiah Mohd Yunus.
Philippine shares shed 0.8%, ahead of the central bank's monetary policy meeting later in the day, at which it is widely expected to hold rates.
"We expect BSP to keep its policy rate at 2.0% to provide further monetary support for the time being but we do not discount a possible reversal should inflation remain elevated over the coming months," ING analysts said.
Elsewhere, stocks were mixed as investors treaded cautiously, with China, Japan, South Korea and Taiwan all on holiday. Most other markets in the region will be closed on Friday.
Thailand fell 0.6%, while India and Indonesia climbed 0.3% and 0.1% respectively.
Foreign investment applications in Thailand dropped 54% to 213 billion baht ($7.12 billion) last year as companies were deterred by the COVID-19 pandemic, while the outlook for 2021 remains uncertain, an investment agency said on Wednesday.
Broader Asian shares rested at record highs as investors digested recent meaty gains and hoped for more global stimulus, with MSCI's broadest index of Asia-Pacific shares outside Japan up 0.1%.
Moves in regional currencies were range-bound even as the dollar was pinned near two-week lows, with softer-than-expected US inflation and another Federal Reserve promise to keep interest rates low weighing the greenback.
"In our view, the Fed stance is still extremely dovish, and this fundamentally holds back the bullish-USD story", OCBC Treasury Research analysts wrote.
Eyes were also on US President Joe Biden as he spoke to his Chinese counterpart Xi Jinping on Wednesday, his first direct contact with the leader since winning the November US presidential election and taking office last month.