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(Updated at 0548 GMT)
By Ankur Banerjee
SINGAPORE, Dec 1 (Reuters) - The dollar dipped on Friday, while the euro edged higher after steep overnight losses as traders weighed data that showed inflation was easing, stoking expectations that interest rates had peaked and central banks would soon start cutting rates.
The dollar index, which measures the U.S. currency against six rivals, was 0.116% lower at 103.33, after clocking its weakest monthly performance in a year in November, despite a 0.6% jump overnight.
Data on Thursday showed U.S. consumer spending rose moderately in October, while the annual increase in inflation was the smallest in more than 2-1/2 years.
The eagerly awaited personal consumption expenditures (PCE) price index rose 3% in October from a year ago, moderating from a three-month string of 3.4% readings though still above the Fed's 2% target.
"While the 3% level remains too high to declare victory on inflation, it marks a new low for the series that will likely please the Fed and alleviate any pressure to implement further hikes," said Ryan Brandham, head of global capital markets, North America, at Validus Risk Management.
"It remains to be seen if getting from 3% to 2% will be easy, or if inflation will remain sticky in 2024."
Federal Reserve policymakers signalled on Thursday that the U.S. central bank's interest rate hikes are likely over, but left the door open to further monetary policy tightening should progress on inflation stall.
Markets are pricing in a 97% chance of the Fed standing pat in its December meeting, the CME FedWatch tool showed, with a 46% chance of a rate cut in March next year compared with a 27% chance last week.
Investors' focus will now move to comments from Fed Chair Jerome Powell later on Friday, with traders likely to scrutinize every word to sketch out rate outlook.
"We expect Powell to reiterate the possibility of further tightening and dampen expectations of rate cuts, said Carol Kong, currency strategist at Commonwealth Bank of Australia.
"Further loosening of financial conditions may undermine the FOMC’s efforts to tame inflation pressures. That said, we do not expect the FOMC to tighten policy again."
In Europe, data on Thursday showed Euro zone inflation tumbled more than expected for a third straight month in November, fuelling bets of early spring rate cuts despite the European Central Bank's explicit guidance.
The data led the euro 0.7% lower on Thursday. It was last up 0.21% at $1.0909. The single currency is down 0.2% for the week.