The U.S. dollar slipped lower Wednesday ahead of a likely Federal Reserve rate cut next week, while sterling has maintained its post-budget bounce.

At 04:30 ET (09:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 99.107, set for a decline of well over 8% so far this year.

Hassett to be next Fed chair?

Economic weakness has seen expectations of a rate cut by the Federal Reserve rise at the U.S. central bank’s next meeting on December 10, weighing on the dollar.

There are more economic numbers to digest, including the private sector jobs report from ADP National Employment Report later in the session, and the November Personal Consumption Expenditures Price Index (PCE) on Friday.

Fed funds futures are pricing in an implied 88% probability of a 25-basis-point cut next week, compared to a 63% chance a month ago, according to the CME Group’s FedWatch tool. 

Also hurting the greenback have been the growing prospect of White House economic adviser Kevin Hassett being nominated as Fed chair.

Hassett, a former Fed senior economist, is deemed close to U.S. President Donald Trump’s administration and in favor of a faster reduction in U.S. interest rates.

“Heading into Thanksgiving, betting markets gave roughly a 35% probability for both Hassett and [Christopher] Waller as the next Fed chair. This week, Hassett’s probability has shot up to 85%.” said analysts at ING, in a note.

“Given perceptions of Hassett as quite dovish, the dollar is a little weaker across the board, the yield curve has seen some modest bullish steepening and risk assets have turned gently bid. This could be the dominant theme until next week’s FOMC meeting.”

Euro on track for hefty annual gain

In Europe, EUR/USD rose 0.2% to 1.1643, on pace for annual gains of over 12%, which would be its biggest annual gain since 2017.

The European Central Bank is due to meet in two weeks and is widely expected to stand pat on rates, having cut rates by a combined 2 percentage points in the year to June before pausing ever since. 

Data released earlier Wednesday showed that business activity in the eurozone expanded at its fastest pace in two-and-a-half years in November, as a robust service sector more than offset manufacturing weakness.

“If EUR/USD can nudge through the 1.1655/70 area – perhaps with the help of some softer US data – we could see a decent move through 1.17. We retain a year-end target of 1.18,” ING added.

GBP/USD rose 0.3% to 1.3259, near its highest levels in a month, in the wake of the government’s annual tax and spending budget last week.

The budget delivered “a set of measures fairly close to market expectations,” said analysts at Goldman Sachs, in a note, avoiding the more disruptive outcomes investors had feared.

The announcement “steered clear of the more currency-negative outcomes of either a larger near-term fiscal contraction than anticipated or of delivering too little of an overall consolidation that sees a reintroduction of U.K. fiscal risk premium in the currency.”

Aussie dollar bounces on strong growth data 

In Asia, USD/JPY slipped 0.1% to 155.75, with bets firming on an interest rate hike by the Bank of Japan this month, in contrast with the U.S. where a cut is 85% priced in for the Federal Reserve’s meeting next week.

USD/CNY traded 0.1% lower to 7.0654, while AUD/USD gained 0.3% to 0.6576, to a one-month-high, after the release of strong Australian third-quarter GDP data.

The economy grew 0.4 % quarter-on-quarter, below forecasts of 0.7 %, though annual growth reached 2.1 %, the fastest in two years.