(Updates to U.S. afternoon)

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Dollar index nearly flat for the week

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Sterling falls as Britain's borrowing shoots past

forecasts

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Yen appreciates as BOJ votes to hold but hawkishness grows

By Saqib Iqbal Ahmed

NEW YORK, Sept 19 (Reuters) -

The dollar strengthened on Friday, extending its rebound

against most major currencies, as traders reviewed the near-term

outlook after the Federal Reserve cut interest rates this week

but signaled gradual easing in the future.

The U.S. Dollar Currency Index, which tracks the

greenback against six major peers, rose 0.3% to 97.662. The

gauge, which fell 1% on Monday and Tuesday on expectations the

Fed might flag a rapid series of rate cuts, was about flat for

the week.

On Wednesday, the Fed delivered an expected rate cut but

signaled little urgency to lower borrowing costs quickly in the

coming months. The Fed's rate forecast, or the so-called "dot

plot," showed projections of two more rate reductions this year.

"It's really a week of two halves," said Marc Chandler, chief

market strategist at Bannockburn Forex. "The votes, the actual

dots, were not as dovish as the statement and the concerns about

the labor market suggested."

The U.S. currency may have room to rebound further after facing

selling pressure in the days ahead of the Fed decision.

"What we're telling our clients is that this is just a

counter-trend move. If you have to sell dollars, you'll have a

better level shortly," Chandler said.

STERLING SLIDE

Sterling fell on Friday after Britain's borrowing surged past

official forecasts, further complicating the country's fiscal

outlook, while the yen firmed after the Bank of Japan held rates

steady, with dissent on the board.

The pound was one of the worst performers among G10

currencies, mirroring investors' concerns that British finance

minister Rachel Reeves may not be able to keep her budget under

control.

The currency eased 0.6% to $1.3468, on pace for

its

biggest two-day drop

since early April.

"Despite a better reading from UK August retail sales data, poor

UK government borrowing data have highlighted the difficulties

Chancellor Reeves faces in delivering the UK budget in

November," said Jane Foley, head FX strategist at Rabobank.

Data published early on Friday showed British retail sales rose

by a stronger-than-expected 0.5% in August, helped by sunny

weather, but sales growth in July was revised slightly down.

The borrowing figures - the highest for the first five

months of a financial year since 2020 - could pave the way for

further tax increases.

Even before Friday's data, Reeves had been expected to

announce new tax increases in her November 26 budget to stay on

track to meet her fiscal rules and avoid fresh upheaval in

financial markets.

BOJ DISSENT UNDERPINS YEN

In the BOJ, the unexpected dissent by two board members

against the decision to hold rates steady unsettled investors

and shifted their focus back on how soon the BOJ will next raise

rates.

"This was unexpected, and suggests that perhaps policy rate

hikes may be coming sooner than anticipated," said David Chao,

global market strategist for Asia-Pacific at Invesco in

Singapore.

The Japanese central bank's next meeting on October 30 will be

the "best chance" for a rate hike for the rest of 2025, he

added.

After a volatile session, the yen was nearly unchanged on

the day at 147.975 against the dollar..

Investors remain unsure whether the BOJ's policy path will

be affected by the October 4 leadership race in Japan's ruling

Liberal Democratic Party to replace outgoing Prime Minister

Shigeru Ishiba.

The New Zealand dollar extended its slump from the prior

session, falling 0.4%, a day after a strikingly weak reading on

the economy pushed yields sharply lower as markets ramped up

wagers for bigger rate cuts ahead.

Cryptocurrency bitcoin was 2% lower at $115,379.