The US dollar held steady on Tuesday as investors continued weighing the likelihood of a Federal Reserve rate cut next month following dovish remarks from policymakers, while the Japanese yen remained in focus amid the possibility of official intervention.

On Monday, Fed Governor Christopher Waller said the labor market was now weak enough to justify another quarter-point rate cut in December, though any further action would depend on a wave of delayed economic data caused by the federal government shutdown.

His comments followed similar remarks from New York Fed President John Williams on Friday.

According to CMEs FedWatch tool, traders now price an 81% chance of a rate cut next month, up sharply from 42% a week earlier. The shift underscores the challenge markets face in pricing short-term rate expectations amid the lack of data during the longest government shutdown in US history, which ended on 14 November.

So far, the impact of this sharp repricing has been limited for the dollar. The euro last traded at 1.1530 dollars after a slight rise on Monday night, while the British pound climbed about 0.2% to 1.3115 dollars.

The dollar index which tracks the US currency against a basket of major peers was steady at 100.13, holding onto last weeks roughly 1% gain.

Francesco Pesole, currency strategist at ING, said year-end portfolio rebalancing flows ahead of the Thanksgiving holiday may limit dollar weakness. But he added in a note to clients: Barring a hawkish repricing in markets, the dollar looks too strong relative to short-term rate differentials, and we see significant downside risks.

Fed officials remain divided on the next move as the central bank still lacks complete economic data.

Investor sentiment was also supported by signs of improved US-China relations. President Donald Trump said Monday that ties with China were extremely strong following a phone call with President Xi Jinping.

Yen traders on alert for possible intervention

Despite a mild dip in the dollar this week, the Japanese yen remained under pressure, trading at 156.51 per dollar close to last weeks 10-month low of 157.90.

Investors are watching closely for any signal of official action from Tokyo, given that the yen has weakened by roughly 10 yen since early October after the appointment of Sanai Takaichi known for her expansionary fiscal stance as Japans new prime minister.

Pesole said thin liquidity surrounding the Thanksgiving holiday could provide favorable conditions for the Bank of Japan to intervene in the dollar/yen rate, ideally after a market-driven correction.

He added: US data could trigger that correction, but in our view, not today.

US retail sales and producer-price data are due later on Tuesday.

In other currencies, the New Zealand dollar slipped to 0.5595 dollars after falling more than 2% this month ahead of an expected rate cut by the Reserve Bank of New Zealand on Wednesday. The Australian dollar traded at 0.6453 dollars, down 0.15% on the day.