By Chibuike Oguh and Stefano Rebaudo
NEW YORK (Reuters) -The U.S. dollar edged slightly lower in choppy trading on Wednesday as markets grappled with the supersized 50 basis point interest rate cut as well as the switch to an easing monetary policy stance delivered by the Federal Reserve.
Investor expectations had largely shifted towards a dovish outcome in the days leading up to the Fed's move on Wednesday, with money markets pricing in around a 65% chance of a 50 basis point (bp) cut. But economists polled by Reuters were leaning towards a 25 bp cut.
"The initial interpretation of the decision was that it was dovish and while it was basically even odds that it was going to happen, overall, on the surface, it's still a dovish move," said Eugene Epstein, head of trading & structured products North America at Moneycorp in Boston.
The dollar index, which measures the greenback against a basket of six peers, was down 0.069% to 100.950 after reversing gains made in early trading. It slid to its lowest in more than a year of 100.21 in the previous session.
The euro strengthened to $1.111950, but remained below a three-week high hit in the previous session.
Against the yen, the dollar was 0.45% higher at 142.895.
"Everything reversed basically by the end of the day, so you can make the argument as a bit of buy the rumor, sell the fact. A lot of dovishness was already priced in," Epstein said.
Money markets priced in 72 bps of additional rate cuts in 2024 and 192 bps by September 2025.
Initial claims for state unemployment benefits dropped unexpectedly to 12,000 last week, according to Labor Department data on Thursday, suggesting labor market growth.
Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026.
The pound hit its highest since March 2022 versus the dollar after the Bank of England's Monetary Policy Committee (MPC) voted 8-1 to keep rates on hold. Sterling was up 0.30% against the greenback at $1.32540 after reaching as high as $1.3314.
The Australian and New Zealand dollars drew support from domestic data surprises. Australian employment exceeded forecasts for a third straight month in August.
The Aussie was up 0.56% to $0.68020.
The kiwi, meanwhile, traded 0.42% higher at $0.62335, after data showed the New Zealand economy contracted by 0.2% in the second quarter.