Analysts said the shift in market expectations was driven by reports late Thursday from the Wall Street Journal and the Financial Times that a 50 basis point rate cut was still an option, as well as comments from a former Fed official supporting a large rate cut.
Markets are expecting a 51 percent chance that the Fed will cut interest rates by 50 basis points on Wednesday at the end of its two-day meeting, up from 15 percent early Thursday.
Markets also expected a 117 basis point rate cut in 2024, up from 107 basis points expected in the previous session.
Price movements
The dollar fell 0.66 percent against the Japanese currency to 140.855 yen, after earlier falling to 140.285 yen, its lowest level since Dec. 28.
The dollar fell against the yen by one percent during the week.
The euro rose 0.08 percent to $1.1083.
The European Central Bank cut interest rates by 25 basis points on Thursday, but bank president Christine Lagarde dampened expectations of another cut in borrowing costs next month.
The euro’s gains pushed the dollar index down 0.08 percent to 101.08.
The dollar pared losses after data showed U.S. consumer confidence improved in September amid falling inflation.
But Bill Dudley, the former president of the Federal Reserve Bank of New York, added to speculation Friday that the US central bank could cut interest rates by 50 basis points, saying there was a strong possibility of such a move and that interest rates were currently between 150 and 200 basis points above the so-called neutral rate for the US economy.
“Why don’t we just get started?” he added.
The pound fell slightly by 0.01 percent to $1.31235, weakening after approaching a one-week high.
The Bank of England is expected to keep interest rates unchanged at 5 percent at its meeting next week after cutting them by 25 basis points in August.
The dollar fell against the Swiss currency by 0.38 percent to 0.84780 francs.
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