Dollar index up 2.1 this month; 0.1 in Europe
Yen eyes 4.5 monthly drop
Fed focus on likelihood of March cut

LONDON, Jan 31 Reuters The dollar was edging higher on Wednesday and headed for its biggest monthly gain since September and while the yen was set for its sharpest monthly drop in almost a year, as traders waited on a U.S. rates decision to round out January.

The dollar index has gained 2.1 against a basket of major currencies this month as markets dialled back expectations on the speed and scale of U.S. rate cuts in the face of strong economic data and pushback from central bankers.

On the day, the dollar index was up 0.1 to 103.51, just below Monday39;s 103.82 which matched last week39;s sevenweek high.

A sharp slowdown in Australian inflation pushed the Aussie dollar down as much as 0.5 to 0.6560 and rallied bonds as investors pulled forward wagers on interest rate cuts, while a moderation in French inflation added to losses for the euro .

Elsewhere moves were more modest, and the yen made little immediate reaction to a hawkish tilt at the Bank of Japan, while markets waited to hear from the Federal Reserve.

The yen is down almost 4.5 on the dollar this month and headed for its largest monthly drop since February last year as tepid wage data and cooling inflation leave room for the Bank of Japan to take its time raising rates.

However, a summary of its January meeting on Wednesday showed its resolve strengthening and conditions supporting an end to…