The US Dollar remained near a three-week high against major currencies on Monday, as markets anticipated central bank meetings later in the week, expecting the Federal Reserve to reduce interest rates while signalling a gradual easing path for 2025.

The Dollar index, which measures the currency against six major peers, remained steady at 106.83 at the time of writing, following a rise to 107.18 on Friday, its highest level since 26th November.

Traders are confident in a quarter-point rate cut by the Fed on Wednesday but now expect officials to hold off on another reduction in January, according to CME's FedWatch tool.

With inflation still exceeding the central bank's 2% annual target, Fed policymakers have explained that recent increases are part of the uneven journey toward reducing price pressures rather than a reversal of the disinflationary trend, Reuters reports.

However, analysts caution that the Fed may remain cautious about the potential for renewed inflation as Trump prepares to take office in January.

“The US economy has been resilient in the face of high interest rates, which means the potential for inflation to rise if the economy overheats is a problem the Fed will need to address,” stated James Kniveton, a senior FX dealer at Convera.

“There is concern that the incoming administration's policies may be inflationary, but as the Bank of Canada Governor commented earlier this month, decisions cannot be based on potential US policy, and (Fed Chair) Jerome Powell may follow suit.

Indeed, investors expect that the Fed's outlook this week will not include any indications of potential future policy changes.

“Powell will ... likely emphasise that it is still too early for officials to build any major policy changes from the new Trump administration into their outlook,” according to Deutsche Bank analysts.

The Yen struggled to rebound after experiencing its largest weekly drop since September, following reports that the Bank of Japan was inclined to skip a rate hike on Thursday. 

The dollar lasted down 0.04% to 153.69 Yen, though it had earlier reached 153.91, its highest level since 26th November. 

In addition, the Euro gained 0.13% to $1.0517, recovering slightly after dipping to $1.0453 last week, partly due to Moody's unexpected downgrade of France on Friday. 

Furthermore, a survey released on Monday showed that the decline in eurozone business activity had eased this month.

Sterling also rose 0.33% to $1.2650, bouncing back from Friday's low of $1.2607, its weakest point since 27th November.