US Dollar dragged by 50 bps Fed cut wagers

dollar hovered near its lowest levels of year on Tuesday, a day before expected start to a U.S. easing cycle that markets are wagering may begin with an outsized rate cut.

euro hovered around $1.1132, not far from year's high of $1.1201.

yen eased to 140.71 after a jaunt to stronger side of 140 during holiday-thinned tre on Monday.

It has fallen most this year so has most room to rally on a dovish turn from U.S. central bank. A sustained break of 140.00 would open way to a low from last January at 127.215.

Fed funds futures have rallied to push chance of a 50 basis point rate cut to 65%, against 30% a week ago. odds have narrowed sharply after media reports revived prospect of a more aggressive easing.

"Any sign of weakness in (Tuesday's U.S. economic data) is only going to reinforce market speculation that re could be a 50 basis points move," Jane Foley, senior forex strategist at Rabobank, said.

August U.S. retail sales and industrial production figures are expected later on Tuesday, although all eyes are on Fed's two-day meeting which concludes on Wednesday.

"Regardless of which of -25bps or -50bps (Fed) goes with on Wednesday, we do think that Fed's messaging will be 'dovish,'" Macquarie strategists said in a note to clients.

" USD could weaken against majors on a very dovish tone, even with a -25bp cut ... largest losses, if any, are still likely to be experienced against JPY," y said.

"That's because contrast between central bank outlooks will remain starkest between Fed and BOJ, for time being."

Bank of Japan is expected to keep policy stey on Friday but signal that furr interest rate hikes are coming, perhaps turning next meeting in October into a live one.

Sterling - best performing G10 currency this year with a 3.9% rise on dollar - has also led charge against dollar thanks to signs of resilience in Britain's economy and stickiness in inflation.

It broke above $1.32 on Monday, buying $1.32095 at 1105 GMT. Bank of England is generally expected to leave rates on hold at 5% when it meets on Thursday, though markets have priced in a 39% chance of anor cut.

Australian and New Zealand dollars bought $0.67555 and $0.6198 respectively after rallying through Monday, as trers focused more on Fed rar than weekend signs of deepening trouble in China's sluggish economy.

Chinese markets are closed for Mid-Autumn Festival break until Wednesday, though yuan was firm at 7.095 in offshore tre as it settles into a new range.

U.S. dollar index held at 100.7, not far from its 2024 low me last month at 100.51.