LONDON, Feb 1 Reuters The dollar weakened slightly against the euro ahead of Wednesday39;s eagerly awaited Federal Reserve policy decision, with investors hoping the U.S. central bank will signal an end to interest rate tightening cycle.

The euro, meanwhile, was barely moved by data showing inflation in the bloc had eased for a third straight month in January.

After a series of jumbo rate increases in 2022 to tame inflation, the market expects the Fed benchmark interest rate to be raised by a quarter of a percentage point to 4.75. That would be the smallest increase since the central bank began raising rates 10 months ago.

Less clear is whether the central bank will continue to signal further increases as evidence mounts that inflation and the economy are both losing momentum.

The dollar index , which measures the U.S. currency against six major peers, fell 0.2 to 101.91. It also slipped in the previous session, partly because of a report showing U.S. labour costs had increased in the fourth quarter at their slowest pace in a year.

With investors pricing in the Fed reaching the end of its ratehike cycle, the index is far from the 20year high of 114.78 it touched on Sept. 28. It has fallen for four straight months.

Fed Chair Jerome Powell39;s words will be closely watched, investors said.

While Fed officials have insisted that rates will stay high for some time to come, the markets simply dont believe them, especially when several key inflation indicators have…