The US dollar saw choppy trading on Thursday as investors continued to digest the Feds cautious stance on further rate cuts, while attention shifted to the Bank of Englands upcoming decision, where no change in policy is expected.

Sterling slipped 0.1% to $1.3615, after climbing in the previous session to $1.3726, its strongest since July 2. The euro steadied at $1.1823, having retreated from a high of $1.19185 hit right after the Feds announcement, the strongest since June 2021.

The Fed cut interest rates by 25 basis points on Wednesday as widely anticipated, with Chair Jerome Powell describing the move as a risk management cut in response to labor market weakness, while stressing there was no need to rush into deeper easing.

Analysts were split on the Feds message: Goldman Sachs suggested Wednesdays cut could mark the start of a series of reductions, while ANZ strategists argued Powells tone was not dovish at all.

Immediately after the decision, the dollar index dropped to 96.224, its weakest since February 2022, before rebounding sharply to end the day up 0.44% at 97.06.

Elliot Clarke, head of international economics at Westpac, said the Feds revised projections highlighted the uncertainty that still surrounds the outlook, noting that the expected timing and scale of cuts reflect ongoing inflation risks.

The Bank of England is widely expected to keep rates at 4% at Thursdays meeting, with markets focused instead on the pace of quantitative easing reduction. Francesco Pesole, FX strategist at ING, warned that any dovish surprise on QE could spark a sell-off in gilts and weigh heavily on sterling.

Official data on Wednesday showed UK inflation rose 3.8% year-on-year in August, reinforcing expectations that no immediate rate cut is on the horizon.

Norway cuts rates for the second time in three months

The Norwegian krone showed little reaction after the central bank delivered a widely expected rate cut, its second in three months. Policymakers signaled further reductions are likely next year if the economy evolves as projected.

The euro trimmed earlier gains against the krone, last up just 0.1% at 0.86775.

Yen awaits Bank of Japan decision

The dollar edged up to 147.215 yen ahead of Fridays BOJ meeting, with markets expecting no change in rates but pricing a quarter-point hike by March, with 50% odds of a move this year.

Investors are also watching the October 4 LDP leadership vote to replace outgoing Prime Minister Shigeru Ishiba, following the partys heavy defeat in upper house elections.

New Zealand GDP contraction pressures NZD

Data on Thursday showed New Zealands economy shrank 0.9% in Q2 from the prior quarter, a worse-than-expected result that added to pressure on the RBNZ.

The weak data fueled bets on more easing, pushing the kiwi down around 1% to $0.5895, its lowest since September 8.