LONDON, Dec 29 Reuters The dollar edged higher on Friday but was still set to end 2023 with a loss, reversing two straight years of gains, dragged down by market expectations that the U.S. Federal Reserve could begin easing interest rates as early as March.

The greenback crept higher on the last trading day of the year although currency moves were mostly subdued amid a holiday lull leading up to the New Year.

Since the Fed launched its aggressive ratehike cycle in early 2022, expectations of how far U.S. rates would have to rise have been a huge driver of the dollar.

But as economic data subsequently pointed to signs that inflation in the United States is cooling, investors turned their focus to how soon the Fed could begin cutting rates expectations that gathered steam after a dovish tilt at the central bank39;s December policy meeting.

Against a basket of currencies, the greenback was up 0.12 on Friday to 101.35 , rising from a fivemonth trough of 100.61 hit in the previous session.

The dollar index was still on track to lose more than 2 for the month and for the year.

Markets are looking for a cut earlier in the U.S. and are less certain that the European Central Bank ECB will cut as quickly, so that39;s why the dollar is very soft, said Niels Christensen, chief analyst at Nordea.

We also have positive risk appetite which is another negative for the dollar. Going into 2024, the soft dollar will be a theme towards the March central bank meetings.

A weakening…