The dollar slid to a two-month low on Monday, extending a downtrend from last week as traders reaffirmed their belief that US rates have peaked and turned their attention to when the Federal Reserve could begin cutting rates.

The yuan struck three-month highs in both the onshore and offshore markets, propped up by China’s central bank, which gave the Australian and New Zealand dollars a leg up, as the two are often used as liquid proxies for the yuan.

The dollar index in Asia trade bottomed out at 103.53, its weakest level since Sept. 1, extending its nearly 2 per cent decline from last week – the sharpest weekly fall since July.

Against the weaker greenback, the euro hit its highest since August at $1.09365, while the yen firmed at a one-month high of 148.68 per dollar.

Markets have priced out the risk of further rate increases from the Fed after a slew of weaker-than-expected US economic indicators last week, particularly after an inflation reading that came in below estimates.

Focus now turns to how soon the first rate cuts could come, with futures pricing in a 30 per cent chance that the Fed could begin lowering rates as early as March, according to the CME FedWatch tool.

“Market pricing for FOMC policy is likely to remain pretty steady, so the dollar should have very few catalysts to move it around this week,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). “If we do see risk appetite improve again, then the dollar can definitely weaken further.”

Sterling edged 0.14 per cent higher to $1.2480, flirting near a two-month peak, while the euro last bought $1.09185 ahead of flash PMI readings in the euro zone due this week.

Also due this week are minutes from the Fed’s latest meeting, which will offer some colour on policymakers’ thinking as they held rates steady for a second time this month.

“(The) FOMC minutes may be framed as a ‘Fed pivot’, thereby underscoring risk-on rallies favouring softer US Treasury yields and US dollar, alongside buying in risk assets,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “The upshot is that the FOMC minutes may overstate incremental dovish shifts and likelihood of the Fed’s intended pivot signals.”

The Japanese yen remained on the stronger side of 150 per dollar and was last 0.3 per cent higher at 149.17.

Elsewhere in Asia, the yuan leapt to a more than three-month high against the dollar in both the onshore and offshore markets, as the central bank guided the unit higher and exporters rushed to convert their dollar receipts into local currency.

The onshore yuan rose 0.5 per cent to an over three-month high of 7.1700 per dollar, while the offshore yuan similarly got a boost and jumped roughly 0.6 per cent to an over three-month top of 7.1703 per dollar.

The Aussie was last 0.5 per cent higher at $0.6546, having struck a three-month high of $0.6563 earlier in the session, while the kiwi gained 0.54 per cent to $0.6025.

China on Monday left its benchmark lending rates unchanged at a monthly fixing, matching expectations, as a weaker yuan continued to limit further monetary easing and policymakers waited to see the effects of previous stimulus on credit demand.

The yuan, which has fallen nearly 4 per cent against the dollar this year in the onshore market, continues to be pressured by a faltering economic recovery in China and as investor sentiment remains fragile.

“I think the theme of a soft Chinese economic recovery will persist for a while,” said CBA’s Kong.

“Until we get a more meaningful recovery in the Chinese economy, I think that will be a headwind for the (yuan), Aussie and the kiwi in the near term.”