© Reuters. U.S. Dollar and Chinese Yuan banknotes are seen in this illustration taken January 30, 2023. REUTERS/Dado Ruvic/Illustration

By Joice Alves

LONDON (Reuters) -The dollar was little changed on Monday in cautious during a U.S. public holiday, while risk-sensitive sterling slid ahead of a busy week for UK economic data.

The , measuring the U.S. currency against six peers, was up 0.13% at 102.64, on the Martin Luther King (MLK) Day holiday.

Bets on Federal Reserve cuts this year, beginning as early as March, have intensified after data on Friday showed U.S. producer prices unexpectedly fell in December. [US/]

Market pricing now points to a 77% chance that the U.S. central bank will begin easing rates in March, up from 68% a week ago, according to the CME FedWatch tool.

“Despite the upside surprise to the CPI on Thursday, investors grew increasing confident that the Fed is likely to cut rates soon,” said Jim Reid, strategist at Deutsche Bank.

In the broader market, traders also watch out for UK inflation, jobs data and retail sales due later in the week, as markets continue to focus on how soon major central banks globally could begin easing rates this year. [GBP/]

Sterling slipped 0.27% to $1.2717, though it remained close to a two-week peak hit last week.

“It’s a big UK data week,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets, adding that the general risk-off mood across markets and speculation on the upcoming data is keeping the pound under pressure. [GBP/]

CIBC expects earnings, inflation and retail spending data to come all below consensus forecasts.

The euro hovered near the $1.10 mark and was last 0.08% lower on the day at $1.0941.

In Asia, the yen remained under pressure, down 0.63% at 145.83 per dollar, moving closer to its lowest level since mid-December, on expectations that the Bank of Japan will keep its ultra-loose policy settings unchanged at its policy meeting next week.

CHINA, TAIWAN

The yuan fell on Monday to a one-month low after China’s central bank surprised markets by keeping its medium-term policy rate unchanged, defying market expectations it would cut rates to shore up China’s bumpy post-pandemic economic recovery.

That sent the sliding to a one-month low of 7.1813 per dollar before it recouped some of those losses to trade down 0.08% at 7.1744.

“Some economists have argued that the PBoC may have chosen to hold rates steady to avoid further downside in the yuan, and excess volatility in the FX market,” said Kathleen Brooks, research director at XTB.

Rate cuts could still be on the table, said Tommy Wo, senior economist at Commerzbank (ETR:).

“There will be more room for PBoC rate cuts when the timing of Fed’s rate reduction becomes clearer.”

Elsewhere, the Taiwan dollar fell to a more than three-week low of 31.284 per U.S. dollar, after the Democratic Progressive Party’s (DPP) Lai Ching-te won the presidency over the weekend, though his party lost its majority in parliament

Analysts now fear policy paralysis.

“DPP lost the majority in the parliament. Hence Lai is ruling with a weaker mandate than Tsai Ing-wen,” said Allan von Mehren, director at Danske Bank.

He expects continued tensions in the Taiwan Strait but not a further escalation.

“China will continue to deter Taiwanese independence with military drills around the island and Taiwan and the U.S. are likely to continue to have closer relations but without crossing China’s red line”.