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LONDON: The dollar edged higher on Monday as traders continued to hold on to dollars but took the view that Federal Reserve tightening plans were largely priced in, while the euro eased from Friday’s two-month high.

An unexpected cut to key lending rates in China highlighted it as the outlier, with other major central banks in talks to raise rates. China’s move only briefly weighed on the yuan.

The U.S. dollar index, which declined sharply last week until Friday’s leap, rose 0.1% to 95.323 at 1340 GMT. The cash Treasury market was closed for a holiday on Monday.

“With 3.7 Fed rate hikes priced in for 2022 and 2.3 for 2023, market participants seem to be inferring that the risks to policy pricing are now more balanced,” Goldman Sachs told clients.

The Fed meets on Jan. 25-26 and is not expected to move rates yet.

Speculators’ net long U.S. dollar positions, or bets that the dollar will rise, edged lower in the week to Jan. 11, but they remained close to recent highs, suggesting investors are keen to hold the greenback amid “hawkish rhetoric from the Fed in recent months”, Rabobank told clients.

“However, the sell-off in USDs in the spot market last week suggests that long positions had become crowded,” Rabobank analysts said.

The euro slipped 0.2% versus the dollar at $1.1396, after rising on Friday to a two-month high.

With no major economic data for the euro zone on the calendar this week, investors will focus on speeches from President Christine Lagarde, other ECB members and on the minutes of the ECB’s December policy meeting out on Thursday.

European Central Bank President Christine Lagarde said on Friday, the bank is ready to take any measures necessary to get inflation down to its 2% target. Inflation rose to 5% last month, the highest on record for the 19-country currency bloc.

ECB board member Isabel Schnabel said in remarks published on Friday that raising interest rates in the euro zone would not push down soaring energy prices.

Elsewhere, momentum for tightening is rising. Even the ultra-accommodative Bank of Japan is debating how soon to begin telegraphing hike plans.

The outlier is China, where a slew of economic data confirmed the deadening effect of coronavirus restrictions on consumer spending, prompting Beijing to ease monetary policy.

The yuan initially faded slightly as government bonds rallied on the rate cut, before firming at 6.3490 per dollar. Sterling slipped 0.2% versus the dollar at $1.3651, after climbing last week to its highest since late October.

UK inflation data is due on Wednesday.

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