The yen retreated on Tuesday, coming off its biggest one-day percentage rise since mid-July as the currency strengthened on comments from Japan’s top central banker, while the U.S. dollar gained as investors awaited the latest reading on inflation.

The greenback strengthened 0.39% at 147.15 against the yen to recover somewhat from a 0.83% fall on Monday against the Japanese currency after comments from Bank of Japan (BOJ) Governor Kazuo Ueda heightened expectations the central bank could shift away from its negative interest rate policy.

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The dollar edged up ahead of the key U.S. inflation report due later on Wednesday, while the euro fell from a one-week high in the previous session with traders cautious ahead of an expected European Central Bank rate hike on Thursday.

The dollar index , which tracks the currency against six peers including yen, euro and sterling, held firm, though moves were subdued, up 0.1% to 104.70, as traders awaited the U.S. consumer price index (CPI) reading for August. The release comes just a week before Federal Reserve officials gather to decide on interest rate policy.

The consumer price index likely increased by 0.6% last month, according to a Reuters survey of economists. That would be the largest gain since June 2022 and would follow two straight monthly advances of 0.2%.

The central bank is largely expected to keep rates on hold at next week’s meeting, according to CME’s FedWatch Tool. The Fed’s next move in November remains more uncertain.

“If inflation were to be within the framework of expectations or even come in slightly below that, those who expect the Fed to have reached the end of the rate cut cycle are likely to feel confirmed,” said You-Na Park-Heger, FX analyst at Commerzbank.

Elsewhere, the euro edged 0.1% lower to $1.0742 ahead of the ECB meeting on Thursday.

Markets have raised their bets on further rate hikes and are now pricing in a 53% chance of a 25 basis point move this week.

A source told Reuters that the ECB expects inflation in the 20-nation euro zone to remain above 3% next year, bolstering the case for a 10th consecutive interest rate increase on Thursday.

“With fresh signs of inflationary pressures, investors also moved to price in a growing chance that the ECB would in fact go ahead with another hike tomorrow,” said Jim Reid, strategist at Deutsche Bank.

Sterling slipped 0.3% to $1.2454, on track for its biggest daily drop in a week as UK economy contracted by 0.5% in July, a worse than expected 0.2% contraction in gross domestic product.

Euro zone government bonds held steady on Tuesday even as money markets slowly increased their bets on another rate hike by the European Central Bank, if not necessarily at its meeting this week.

Investors are almost evenly split on whether the ECB will raise interest rates on Thursday, with euro short-term rate (ESTR) forwards pricing roughly a 50% chance of a 25 basis point (bps) hike, from around 40% the day before.

Money markets are close to fully pricing in a 25 basis point ECB move by year-end, with no further tightening afterwards.

Expectations that rate hikes are near the end was a factor in helping German investor sentiment unexpectedly improve in September.

But bonds remained fairly steady despite the gradual ticking up in ECB rate expectations, cautious ahead of Wednesday’s crucial U.S. inflation data that will set the tone for whether the Federal Reserve will raise rates again, and the ECB’s Thursday meeting.

Germany’s 10-year government bond yield, the benchmark for the euro area, edged up to 2.64%.

“A hawkish tone from the U.S. CPI data and a hike from the ECB could give front-end rates a larger lift this week,” said Benjamin Schroeder, senior rate strategist at ING.

Germany’s two-year bond yield was 3.12% up 3 bps.

Recent comments from Fed officials have indicated the Federal Reserve is content to keep rates steady at its next policy meeting on Sept. 19-20 but is not ready to declare the war on inflation is over.

Also in the mix on Tuesday was data showing German wholesale prices fell for the fifth month in August due to lower prices for mineral oil products.

However, oil prices, which have been triggering concerns about the inflation outlook, rose with Brent up nearly 2%.

Italy’s 10-year government bond yield, the benchmark for the euro area periphery, edged up 1 bp to 4.4%.

The spread between Italian and German 10-year yields – a gauge of investor sentiment towards the euro zone’s more indebted countries – was at 174.5 bps, just off its widest level in two months.

The Canadian dollar strengthened against its U.S. counterpart on Monday, adding to its recovery from a five-month low, as an increase in risk appetite weighed on the safe-haven U.S. dollar.

The loonie was trading 0.4% higher at 1.3580 to the greenback, or 73.64 U.S. cents, after moving in a range of 1.3562 to 1.3639. On Thursday, the currency hit its weakest intraday level since March 28 at 1.3694.

“It has been a fairly quiet day activity-wise, with the rebound in U.S. equities lending some support to the risk backdrop, which has weighed on the USD more broadly,” said George Davis, chief technical strategist at RBC Capital Markets.

The U.S. dollar (.DXY) gave back some recent gains against a basket of major currencies and Wall Street rallied as investors awaited U.S. inflation data on Wednesday.

The price of oil , one of Canada’s major exports, settled down 0.3% at $87.29 a barrel but holding near 10-month highs following fresh Saudi and Russian crude output cuts.

The move higher for the loonie follows stronger-than-expected domestic jobs data on Friday that kept alive prospects of another interest rate hike by the Bank of Canada.

The central bank left its policy rate on hold last week at a 22-year high of 5% after hiking in June and July.

Canadian government bond yields rose across a steeper curve, tracking moves in U.S. Treasuries. The 10-year was up 2.1 basis points at 3.699%.

The steep rout in eastern European currencies is raising speculation among market strategists that policymakers will have to slow their plans to ease monetary policy.

The Polish currency dropped 0.3% against the euro, extending its decline to 3.4% in the past week after a bigger-than-expected rate cut roiled markets. With Hungary already months into an easing cycle and the Czech Republic weighing when it should embark on its own, the three countries led losses across emerging markets.

Last week’s 75 basis-point rate cut in Poland, which was three times larger than expected, sparked the selloff as it raised questions about the central bank’s determination to curb inflation weeks before parliamentary elections. The move was “premature” because of persistent inflation, central banker Przemyslaw Litwiniuk told TVN24 television in an interview Monday.

Bank of America strategists on Tuesday closed a long euro-zloty position as they expect authorities will step in to bolster the currency, “via verbal, direct interventions or liquidity management,” strategists led by Mikhail Liluashvili wrote in a note.

The extent of the decline appears to have put also some policymakers on notice. What happened to the zloty is a clear signal about how such rate decisions can impact the central bank’s credibility, another member of the Polish Monetary Policy Council Ludwik Kotecki told reporters on Tuesday.

In the Czech Republic, board member Jan Prochazka said in an interview for E15 newspaper that his central bank must avoid cutting interest rates too soon as underlying inflationary pressures are still “very strong.”