Dollar pauses below two-decade peak as markets ponder Fed path

Bets for supersized easing ramped up last week after data showed U.S. inflation, already at a four-decade high, continued to accelerate in June. But some Federal Reserve officials were quick to throw cold water on such talk, and figures from Friday showed a easing of consumer inflation expectations to the lowest in a year.

Traders in futures contracts tied to the Fed's short-term federal funds policy rate, who had been leaning toward a full-percentage-point rise in interest rates, shifted their bets firmly in favour of a 0.75-percentage-point increase at the upcoming meeting, with the odds last seen at about 81%.

The dollar index - which gauges the greenback against six counterparts - was flat at 107.47. That was off Monday's low of 106.88 but also well back from the high of 109.29 last week, a level not seen since September 2002.