TOKYO, Dec 4 (Reuters) - The dollar struggled to regain some footing on Monday as markets took stock of cautious remarks from Federal Reserve Chair Jerome Powell and awaited a key employment report later in the week that could influence the outlook for U.S. interest rates.
Meanwhile, bitcoin returned to the spotlight as it rose to the $40,000 level for the first time in over a year.
Powell said on Friday it was clear that U.S. monetary policy was slowing the economy as expected, with the benchmark overnight interest rate "well into restrictive territory."
While Powell reiterated that the Fed is prepared to tighten policy further if deemed appropriate, traders were convinced the rate-hike cycle was over.
Markets were pricing in a 60% chance of a rate cut by the March meeting compared with 21% just over a week ago, according to the CME's FedWatch tool.
The U.S. dollar index, which tracks the currency against six major counterparts, picked up slightly to 103.33 in the Asian afternoon but still not far from Friday's close.
U.S. data remains the "primary driver" of the G10 currencies, making non-farm payrolls the "most important risk event" this week, said Kyle Rodda, senior financial market analyst at Capital.com. The closely watched November jobs report will be released on Friday.
"What we are seeing is the pricing out of U.S. economic exceptionalism, compounded by an unwinding of stretched long positioning in the U.S. dollar."
That means dollar pairs could continue to get a boost depending on U.S. economic data, Rodda said.
Against the yen, the dollar clawed its way back up to $146.80 yen after falling to 146.24 earlier in the session.
It was the Japanese currency's highest against the greenback since Sept. 11 and well off the near 33-year low of 151.92 per dollar touched in the middle of November.
The Australian dollar rose to a fresh four-month high against the greenback of $0.669 before easing to $0.6655 in the Asian afternoon.
The kiwi fell more than 0.2% to $0.61940 after hitting $0.6222, its strongest level since late July.
Sterling, meanwhile, edged further off a three-month high against the greenback of $1.2733 hit last week, hovering around $1.26745.
Currency markets could also be swayed this week by speeches from several European Central Bank (ECB) officials ahead of a slew of economic data from the region, including a speech by ECB President Christine Lagarde later on Monday.
"Lagarde will certainly welcome last week’s Eurozone CPI report but I doubt she will entertain the idea of ECB rate cuts yet," said Carol Kong, a currency strategist at Commonwealth Bank of Australia, adding that the eurozone labour market is still tight.
The euro ticked down to as low as $1.0829 last week after data showed euro zone inflation had fallen to 2.4% in November, fuelling bets that the ECB will cut interest rates quicker than the bank has been suggesting.
The euro slipped 0.13% on Monday to $1.08685.
Elsewhere in cryptocurrencies, bitcoin touched the $40,000 level for the first time in almost a year and a half on bets that U.S. regulators will soon approve stock-market traded bitcoin funds. It last stood at $41,425, its highest since April 2022.
(Reporting by Brigid Riley; Editing by Shri Navaratnam and Sam Holmes)
