Sept 18 (Reuters) - The dollar slipped on Wednesday even as Treasury yields edged higher and global stocks steadied as traders weighed the odds of a super-sized Federal Reserve interest rate cut later in the day.
The U.S. currency dropped 0.3% against the yen to 141.92, handing back about a third of its gains from Tuesday, when unexpectedly robust U.S. retail sales data was taken as weakening the case for aggressive Fed easing.
It also lost ground against other majors, with the British pound up 0.4%.
U.S. bond yields ticked higher, however. The 2-year Treasury yield , the most sensitive to short-term rate expectations, edged up 3.4 basis points to 3.626%, and the benchmark 10-year yield rose 4 basis points to 3.69%.
The Fed will announce its rate decision at 2 p.m. EDT (1800 GMT).
Chances of the U.S. central bank kicking off its easing cycle with a super-sized cut of 50 basis points (bps) were revived earlier this week, after media reports raised the prospect of more aggressive action.
Financial markets are fully pricing in a 25 bps rate cut, while the odds of a 50 bps cut stood at 63% by Wednesday, according to LSEG data, up from as little as 14% a week ago.
"We love this debate - everyone's very focussed on 50 or 25 but what is important is that they communicate to the market that they intend to go neutral by next summer," said Samy Chaar, chief economist at Lombard Odier.
"The worst that you can get is they go 25 and pretend that everything is normal and that monetary policy still needs to be restrictive."
U.S. stocks closed nearly unchanged on Tuesday as investors braced for the Federal Reserve interest-rate decision on Wednesday.
European stocks (.STOXX), slipped 0.4%, with technology and media shares among the biggest laggards.
MSCI's index of world stocks (.MIWD00000PUS), slipped 0.1% after having touched a two-week high a day earlier and just below an all-time high.
Japan's Nikkei stock index (.N225), climbed as much as 1.3% in reaction to overnight weakness in the yen, but pared those gains to 0.5% as the currency rebounded.
BULL RUN TO GO ON?
Wall Street finished nearly unchanged on Tuesday, failing to sustain early momentum that pushed the S&P 500 and Dow Jones to record intraday highs. S&P 500 futures pointed to a slightly higher open later on Wednesday.
"We think equities will fare well as the Federal Reserve begins to ease policy against a backdrop of resilient economic activity," said Daniel Grosvenor, director of equity strategy at Oxford Economics.
"However, the upside is likely to be more modest than previous soft-landing episodes as headline valuations are stretched," he added.
The euro edged up 0.2% to $1.1124. Sterling rose 0.4% to $1.3210 after data showed British inflation held steady in August, but picked up in the services sector, adding to bets in financial markets that the Bank of England will keep interest rates on hold on Thursday.
Traders are pricing in just a 26% probability of a 25-bp cut from the BoE on Thursday.
Meanwhile, gold edged 0.3% higher to $2,577 per ounce, closing in on record highs touched earlier this week.
Crude oil pulled back after gaining about $1 a barrel on Tuesday as tensions escalated in the Middle East.
U.S. crude futures declined 0.6% to $70.63, and Brent crude futures lost 0.6% to trade at $73.14.
Reporting by Kevin Buckland in Tokyo and Sruthi Shankar in London; Editing by Shri Navaratnam, Jacqueline Wong, Angus MacSwan and Christina Fincher
