SINGAPORE, Feb 21 (Reuters) - The dollar was parked below recent peaks on Tuesday, as a three-week rally faded and traders waited on economic data to figure out whether it's warranted to push the dollar up any further.
Strong U.S. labor data and sticky inflation have raised U.S. rate expectations and supported the dollar's rally this month - Tuesday's European and U.S. manufacturing data and Friday's core PCE price index will guide the next steps.
After a quiet Monday thanks to the President's Day holiday in the United States, the dollar stood steady at 132.24 yen and $1.0666 euro, with the common currency finding strong support above $1.06.
The U.S. dollar index has climbed three weeks in a row for a gain of about 1.7% through February so far, but has steadied around 104, down from a six-week high of 104.67 hit on Friday.
"Friday's inability of euro/dollar to push lower after breaking below $1.0650 rather sums up the FX market for me," Societe Generale strategist Kit Juckes said.
"There are two reasons why the dollar's bounce is getting stuck," he added, noting that European and U.S. growth forecasts are converging and the difference in relative rate expectations is narrowing.
"I suspect that further significant dollar strength will require the Fed Funds futures market to start pricing in a 50 basis point (bp) rate hike in March," he said.
Fed funds futures currently imply about a 16% chance of that, while in Europe a 50 bp hike in March is all but priced in. Elsewhere, currency markets were broadly steady.
China's yuan gave back small gains made on Monday. In Australia, traders are awaiting wages and labor data due later in the week. The Aussie dipped about 0.3% to $0.6893, showing little reaction to minutes showing central bankers did not consider pausing hikes at February's meeting.
The New Zealand dollar held at $0.6246 ahead of a central bank meeting on Wednesday. Markets are pricing a 50 bp hike to bring New Zealand's benchmark interest rate to 4.75% and are also weighing the economic impact of Cyclone Gabrielle.
"As markets contemplate the cost of rebuilding and the impact that's likely to have on inflation, insurance flows and infrastructure spending, it's quickly becoming a potential driver of sustained New Zealand dollar strength," ANZ analysts said.
Sterling was steady at $1.2023. The Swedish crown held Monday's gains after inflation turned sticky and central bank minutes showed policymakers were prepared to keep hiking.
Bitcoin found support after Hong Kong's markets regulator published proposed rules to license crypto exchanges, seen as a step in the direction of encouraging the city's development as a crypto hub. It last bought $24,878.
(Reporting by Tom Westbrook; Editing by Shri Navaratnam and Himani Sarkar)
