LONDON - The dollar slipped against its rivals on Friday and was set for its biggest weekly drop in more than three months before a U.S. central bank meeting next week where policymakers will shed more light on the outlook for interest rates.
While no change in policy rates is expected next week after the Fed paused a multi-year rate hiking cycle in January, officials might strike a more cautious view on the outlook for the global economy after a volatile week in currency markets.
"We are coming to the end of a very exhausting week in currency markets with the Brexit news and investors are waiting to get more insights from the Fed," said Esther Maria Reichelt, an FX strategist at Commerzbank.
Against its rivals, the dollar fell 0.2 percent to 96.61 in early London trading. For the week, it is set to weaken 0.7 percent, its biggest drop since early December.
Antipodean currencies led by the Australian dollar and its New Zealand counterpart were the biggest gainers against the dollar after Beijing said it can use reserve requirements and interest rates to support growth.
The outlook for both those currencies is heavily correlated with the outlook for the Chinese economy.
The yen remained firm after the Bank of Japan kept monetary policy steady but tempered its optimism that robust exports and factory output will underpin growth, giving a boost to its perceived safe-haven status.
Elsewhere, the pound paused for breath but stayed on course for its biggest weekly gain in seven weeks on growing expectations that Britain won't crash out of the European Union without a deal on March 29.
Sterling last traded at $1.3217, below Wednesday's nine-month high of $1.3380 but up 1.8 percent so far this week, the biggest such gain since late January after the UK parliament voted to seek a delay in Britain's exit from the European Union, following a decision to avert a no-deal Brexit.
The Chinese currency in the offshore market also remained firm against the dollar at 6.71 yuan per dollar.
(Reporting by Saikat Chatterjee Editing by Peter Graff) ((firstname.lastname@example.org; +44-20-7542-1713; Reuters Messaging: email@example.com))