A dip in the dollar is expected ahead of this week's inflation data

Investors awaited inflation data yesterday to see if price pressures are abating and what that means for further Federal Reserve interest rate hikes.

After raising rates 25 basis points in May and June, the Fed is likely to pause in July. In addition, markets expect the Fed to cut rates by year-end due to an expected recession, even though Fed officials have stressed the need to keep rates high.

Also, strong jobs data for March have added to expectations that the U.S. central bank will complete one more rate hike. The data on Friday showed employers added 236,000 jobs while the unemployment rate fell to 3.5%.

The euro was also likely boosted by a rise in European bond yields on Tuesday as traders in the region returned after markets were closed on Friday and Monday for the Easter holiday.

Algorithms trading currencies based on the difference between European and U.S. rates might have sold euros for dollars when U.S. Treasury yields rose after the jobs data while European bond markets were closed, said Simon Harvey, head of FX analysis at Monex Europe.

Additionally, the dollar slumped against the yen, after jumping on Monday as Bank of Japan Governor Kazuo Ueda indicated the institution would not scale back its massive stimulus program.