LONDON: The dollar fell slightly on Monday as traders believed the Federal Reserve’s tightening measures were largely priced in, while the euro eased from Friday’s two-month high.

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

The US dollar index, which fell sharply last week until Friday’s jump, edged down 0.1% to 95.076 by 0900 GMT. The spot Treasury market was closed for a bank holiday on Monday.

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

The Fed meets on January 25 and 26 and is not yet expected to change its rates.

The euro rose 0.1% against the dollar to $1.1432, with no major economic data on the calendar this week, investors will focus on speeches by President Christine Lagarde and other ECB members , said ING analysts.

European Central Bank President Christine Lagarde said on Friday the bank was ready to take all necessary steps to bring inflation back to its 2% target. Inflation hit 5% last month, the highest on record for the 19-nation currency bloc.

Isabel Schnabel, a member of the ECB’s executive board, said in remarks published on Friday that raising interest rates in the euro zone would not lower energy prices.

Elsewhere, the tightening momentum is accelerating. Even the ultra-dovish Bank of Japan is wondering when to start telegraphing upside plans.

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

The yuan initially faded slightly as government bonds rallied on lower rates, before firming to 6.3475 to the dollar. [CNY/]

UK inflation data on Wednesday could help extend a month-long rally in sterling. It was flat at $1.3679 against the dollar, after hitting its highest level since late October last week.

(Reporting by Joice Alves, editing by Ed Osmond)