Dollar Softens as Yen Hits Yearly High Ahead of Central Bank Meetings

The dollar weakened while the yen reached its highest level this year, as investors await next week's central bank announcements. The Federal Reserve is expected to cut interest rates, but the size of the cut remains uncertain, keeping investors on edge. Analysts and traders weigh in on the implications.

The dollar softened on Friday as the yen reached its highest level of the year, driven by investor caution ahead of next week's series of central bank meetings. The focus remains on the Federal Reserve and the anticipated interest rate cut, with uncertainty persisting over whether it will be 25 or 50 basis points.

Analysts note media reports from the Financial Times and Wall Street Journal suggesting a close decision by the Fed, fueling speculation of a significant rate cut. Higher U.S. jobless claims and articles discussing the Fed's rate dilemma have revived bets on a jumbo cut at the September meeting, according to Christopher Wong, currency strategist at OCBC.

Traders are now pricing in a 45% chance of the Fed cutting rates by 50 basis points, according to the CME FedWatch tool. Speculation intensified after former New York Federal Reserve President Bill Dudley advocated for a 50 basis points cut, citing rates are significantly above the neutral rate suitable for the U.S. economy.

(With inputs from agencies.)