While expectations of a 25 basis point rate cut are firmly baked into money markets, some investors are gunning for a 50 basis point cut. The Fed is widely expected to cut a total by nearly 75 basis points by the end of the year.

"We are certainly seeing more concrete signals emerge from both the Fed and the ECB in terms of easing policy and only the question is how much will the Fed cut next week," said Ulrich Leuchtmann, the head of currency research at Commerzbank.

Against a basket of its rivals, the dollar edged 0.1% lower to 97.09.

Morgan Stanley strategists said in a daily note that the overall outlook for riskier assets remained bearish thanks to disappointing U.S. earnings reports and weak prospects for global trade.

"All this gives strong reason for the current internationally-focused Fed to consider cutting rates by 50 bps at the end of the month," they said. A 50 basis point cut would weaken the dollar sharply, particularly against high-yielding currencies, they said.

Despite the growing expectations of a U.S. interest rate cut, the euro has been hemmed in a narrow trading range in recent days around the $1.12 level as investors expected the European Central Bank to follow in the Fed's footsteps.

Money markets are currently assigning a 50% probability of a 10 basis points rate cut next week at a scheduled meeting.

AUSSIE UP

The weakness in the dollar pushed other currencies higher. The Australian dollar led gainers thanks to a solid jobs report.

Australian employment rose by a surprisingly small 500 positions in June, but all the weakness was in part-time work with full-time jobs rising by 21,100. The unemployment rate held steady at 5.2% for a third month running.

The Aussie was 0.3% higher at $0.7031.

"The Australian dollar drew a significant part of its support from the June underemployment rate, which fell to 8.2% from 8.6%," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

He said the underemployment rate had a higher correlation with policy rates and wages than the jobless rate and was likely to attract more attention in the future.