By Ankur Banerjee and Greta Rosen Fondahn

(Reuters) -The dollar steadied on Friday, but was on track to end the week lower after a six-week winning streak, while investors turned their focus to Donald Trump's presidential inauguration and awaited the incoming administration's policies.

The yen was poised for its strongest weekly performance in over a month as expectations grow that the Bank of Japan will raise rates next week, putting the dollar on the back foot.

The dollar has surged in the past few weeks on the back of rising Treasury yields, reflecting expectations that President-elect Trump's policies could boost inflation when the U.S. economy is already strong.

But bond markets got relief from a relentless sell-off after softer U.S. core inflation data on Wednesday, plus remarks from Federal Reserve Governor Christopher Waller on Thursday, who said three or four interest rate cuts were still possible this year if the data supported that.

This led markets to up their bets on Fed cuts this year, putting some pressure on the dollar ahead of Trump's return to the White House next week.

Money markets currently price in about 43 basis points in U.S. rate cuts in 2025.

Investors are now awaiting Trump's inauguration speech on Monday to get a better sense of his policy steps, with a volatile period for markets expected ahead.

"What happens next is just so dependent on what we hear from Trump, what he does and the policies that he implements in his first couple of days and weeks," said Fiona Cincotta, senior market analyst at City Index.

But Cincotta said she would be looking to gauge market sentiment later in the session.

"It'll be interesting to see what happens towards the end of the session today... Whether investors are prepared to hold risk going into next week, or whether we see a little bit of a sell-off heading into the weekend."

The yen has climbed more than 1% against the dollar this week, reversing last week's decline. It was last 0.45% weaker at 155.8 per dollar, after touching a one-month high of 154.98 per dollar earlier on Friday.

Remarks from BOJ officials along with Japanese data that point to persistent price pressure and strong wage growth have helped boost market confidence that a rate shift is in the offing, with traders pricing in an 80% chance of a hike next week.

Sources also told Reuters that the central bank is likely to hike rates next week barring any market shocks when Trump takes office.

"Unlike most other central banks, they (BOJ) benefit from the Fed's recent hawkish shift which means they can hike without causing too much currency volatility," said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management.

Sterling was down 0.45% at $1.21845, not far from the 14-month low it hit on Monday.

British retail sales fell unexpectedly in December, according to data on Friday that raised the risk of an economic contraction in the fourth quarter.

The euro was flat at $1.03025.

That left the dollar index, which measures the U.S. currency against six other units, up 0.1% at 109.08, away from a more than two-year high touched at the start of the week.

The index is set for a drop of about 0.5% in the week, which would snap a six-week run of gains.

China's yuan was steady at 7.3289 per dollar after data showed the world's second biggest economy grew 5.4% in the fourth quarter, significantly beating analysts' expectations and putting full-year 2024 growth at 5%, bang in the centre of Beijing's target.

(Reporting by Ankur Banerjee in Singapore and Greta Rosen Fondahn in Gdansk; Editing by Edwina Gibbs, Kim Coghill and Jane Merriman)