Trading activity remained subdued as many Asian markets were closed for the Lunar New Year holiday and the U.S. had just concluded its Presidents' Day holiday. Significant economic events are scheduled for later this week, including the release of the Federal Reserve's previous meeting minutes and preliminary U.S. gross domestic product data. Markets are anticipating signals, expected later this week, regarding the potential timing of interest rate cuts by the Fed.

"We maintain a fairly optimistic outlook on the U.S. economy," said Kristina Clifton, a senior foreign exchange strategist at Commonwealth Bank of Australia in Sydney. "Market pricing currently suggests a high probability of a rate cut in June, which aligns with our baseline view. However, our divergence from market consensus lies in our expectation for an additional cut in July." She further noted, "We believe the dominant driver for the U.S. dollar's performance in 2026 will be the narrative of U.S. economic exceptionalism."

The U.S. dollar index, which measures the currency against a basket of peers, was largely unchanged at 97.12, following a 0.2% gain in the previous session. The euro edged down 0.06% to $1.1843. The yen appreciated 0.15% to 153.28 per dollar. The British pound declined 0.07% to $1.3616.

Data released last Friday showed U.S. consumer price index (CPI) rose less than anticipated in January, providing the Federal Reserve greater flexibility for potential policy easing later this year. Money market traders are currently pricing in approximately 62 basis points of rate cuts for the remainder of the year, implying two 25-basis-point reductions with about a 50% chance of a third cut. The next potential cut is anticipated in June, with markets assigning an 80% probability to a 25-basis-point reduction.

The Fed's Federal Open Market Committee (FOMC) is scheduled to release the minutes from its January meeting on Wednesday local time. Other key data points this week include inflation figures from the UK, Canada, and Japan, alongside preliminary global purchasing managers' index data on Friday.

Meanwhile, the yen recouped some of its previous session's losses after weaker-than-expected Japanese economic data fueled speculation about increased government stimulus measures. The Australian dollar experienced a slight decline following the release of the Reserve Bank of Australia's February meeting minutes. On Monday, the yen's recent rally paused as official data indicated Japan's economy barely grew in the previous quarter, registering a mere 0.2% annualized expansion.

The Australian dollar fell 0.07% to $0.7064. The New Zealand dollar declined 0.08% to $0.6026 ahead of the Reserve Bank of New Zealand's policy meeting on Wednesday, where it is widely expected to keep interest rates unchanged. The RBA minutes indicated that without the rate hike implemented this month, inflation would have remained persistently high, and uncertainty remains regarding the need for further policy tightening. Minutes from the RBA's last board meeting revealed members' concerns that risks to their inflation and employment objectives had "shifted significantly."

In cryptocurrency markets, Bitcoin rose 0.05% to $68,881.72, while Ethereum was largely flat at $1,999.11.