FOREX-Dollar close to multi-week lows versus euro and yen before US data

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Euro supported by ECB's stance and strong economic data

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BoJ policy decision in focus as a rate hike is priced in

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US data could reinforce expectations for a Fed pause in January

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Yuan hits 15-month high against dollar

(Adds comments, background)

By Stefano Rebaudo

Dec 16 (Reuters) - The dollar hovered around multi-week lows against the euro and yen on Tuesday as investors awaited U.S. economic data later in the session that could affect expectations for the Federal Reserve's policy path.

Central bank decisions are in focus this week with the European Central Bank and Bank of England holding meetings on Thursday, while the Bank of Japan will announce its policy decision on Friday.

Economic data out of the euro zone was mixed but supported the ECB's higher-for-longer policy rate stance and bolstered the euro. Data showed German investor morale rising more than expected in December and euro zone business activity growth slowing at the end of 2025.

However, the absence of pushback from the ECB on market bets for rate hikes in late 2026 or early 2027 may be read as tacit approval, leaving room for a hawkish surprise at this week's policy meeting.

The euro was up 0.05% to $1.1758 after hitting $1.1769 on Monday, its highest since September 24.

Peace talks over Ukraine are in focus after Sweden's Prime Minister Ulf Kristersson said significant progress was made on security guarantees during Monday's talks in Berlin, though investors remain wary about the chances of a lasting deal.

BOJ RATE OUTLOOK IN FOCUS AS HIKE PRICED IN

A rate hike from the BoJ is largely baked in, but any signal that policymakers could tighten again before spring wage talks would mark a hawkish shift.

Big Japanese manufacturers' business sentiment hit a four-year high in the three months to December, supporting expectations for additional tightening, but analysts said the BoJ's policy update may fail to support the yen as fiscal concerns weigh.

Japan's government plans to introduce additional tax breaks to spur investment, despite concerns in financial markets about the country's rising debt.

The dollar dropped 0.25% to 154.85 against the yen ahead of the BoJ decision, while renewed volatility sent investors looking for havens. The dollar hit 154.34 in early December, its lowest since November 14.

Morgan Stanley said it was neutral on dollar/yen but saw potential downside risk if U.S. labour market data continues to deteriorate.

US DATA FOG IS CLEARING

Fed funds futures are pricing an implied 75.6% probability of a hold in rates at the U.S. central bank's next meeting on January 28, unchanged from a day earlier, according to the CME Group's FedWatch tool.

"Consensus sees November payrolls slightly below trend at plus 50k and unemployment at 4.4-4.5%, a just-about-right print that would temper labour concerns while preserving optionality for cuts," said Stefan Koopman, senior macro strategist at Rabobank.

"A weaker print could spur risk-off moves: equities lower, a softer dollar, and flows into cash and Treasuries," he added.

The dollar index, which measures the currency against a basket of six key rivals, was trading at 98.20, a little lower after earlier approaching the lowest level since October 17.

Analysts hold mixed views: some expect the data to clarify employment trends during the U.S. government shutdown, while others doubt it will fully lift the fog.

CHINESE YUAN AT 14-MONTH HIGHS

The Chinese yuan trading offshore was last 0.1% firmer at 7.0371 to the dollar, its strongest since October 3, 2024.

"People's Bank of China will not be rushed into accepting a much stronger renminbi, but pressure could build in 2026 especially if we are correct with our house call for two more Fed cuts and a slightly weaker dollar," said Chris Turner, global head of markets at ING, citing forecasts from ING's Greater China economist.

The Australian dollar was last flat at $0.6638, little changed following a private survey showing that consumer sentiment slid in December.

Cryptocurrency markets fluctuated between gains and losses after a pullback on Monday. (Reporting by Stefano Rebaudo and Gregor Stuart Hunter; Editing by Mark Potter and Susan Fenton)