- The U.S. dollar edged lower in early European trade Monday, with traders wary ahead of the release of key U.S. inflation data that could offer further clues on future Federal Reserve policies. 

At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged 0.1% lower to 105.627. 

U.S. consumer price data looms large

The new week has started with the dollar on the backfoot as traders await the release, on Tuesday, of the U.S. data for October, for an update on the Fed’s progress in its battle to keep lowering inflation from last year’s multi-decade highs.

Inflation is expected to have risen 0.1% on a monthly basis. September's CPI rose 0.4% on a surprise surge in rental costs, but also showed a moderation in underlying inflation pressures.

A sharper cooling could fan the peak rate talk, fuelled by October's report, which pointed to easing conditions in the labor market.

However, Fed Chair last week hinted that the battle against inflation may not be over yet, and a further interest rate hike was possible - a  view that was largely backed up by a series of his colleagues throughout the week.

“If we look at the Fed Funds future curve, it is clear that markets remain highly doubtful another hike will be delivered at all, but Powell’s remarks probably represent the culmination of a pushback against the recent dovish repricing,” said analyst at ING, in a note.

More Fed speakers are lined up this week and are likely to echo Chair Powell in leaving the door open for further hikes, which could support the dollar, particularly if the inflation data suggests prices remain sticky.

Euro, sterling edge higher

rose 0.1% to 1.0692, bouncing after losses last week, with European Central Bank official scheduled to speak later today, giving the keynote speech to kick off Euro Finance Week.

ECB President last week said that rates will stay restrictive at least for several quarters as inflation remains elevated, but the economic outlook within the region remains weak.

rose 0.1% to 1.2237, ahead of the U.K. monthly employment report on Tuesday, which includes data, and a CPI reading on Wednesday, after data last week showed the economy failed to grow.

Yen slumps to one-year low 

In Asia, rose 0.2% to 151.78, with the yen hitting a fresh one-year low against the dollar after Japanese data showed wholesale inflation slowed below 1% for the first time in just over 2-1/2-years, offering little reason for the to abandon its very dovish monetary stance.

rose 0.1% to 7.2948, with the yuan remaining weak after China's Singles Day recorded only limited growth, indicating that the country’s consumers still lack confidence.