FILE PHOTO: U.S. one hundred dollar notes are seen in this picture illustration taken in Seoul February 7, 2011. REUTERS/Lee Jae-Won/File Photo

By Ankur Banerjee

SINGAPORE (Reuters) - The U.S. dollar was steady on Wednesday as traders braced for crucial inflation reports this week that could help define the size and scope of interest rate cuts from the Federal Reserve for next week and beyond.

After a dismal jobs report last week cemented expectations of the Fed lowering borrowing costs at its September 16-17 policy meeting, the only question for investors is whether the magnitude of the cut would be 25 basis points or 50 basis points.

Much of that will depend on the extent of the impact from tariffs on prices in the world's largest economy. U.S. producer price inflation data is due on Wednesday followed by the consumer price inflation report on Thursday.

Traders are fully pricing in a 25 bps cut next week and have ascribed a 5% chance to a 50 bps reduction. They anticipate 66 bps of easing this year.

"The bar for a 50 bp move is high, there would likely need to be a clear downside surprise in core inflation to give doves cover," said Kieran Williams, head of Asia FX at InTouch Capital Markets.

"Given sticky services prices and the Fed’s preference for signalling gradualism, a jumbo cut next week looks unlikely, but the data will shape how aggressively the market prices the easing path into year end."

That left the currency markets in limbo in Asian hours. The euro was little changed at $1.17115 after dropping 0.5% in the previous session while sterling was at $1.3534. The yen was flat at 147.41 per dollar.

The Australian dollar tacked on 0.3% to $0.66065, hovering near the seven-week high it touched on Tuesday. [AUD/]

The dollar index, which measures the U.S. currency against six other units, was steady at 97.834 after gaining 0.3% on Tuesday. The index is down about 10% in 2025 as erratic U.S. trade policies and rate cut expectations dented the dollar's appeal.

Investors also took in stride a court ruling that temporarily blocked President Donald Trump from removing Federal Reserve Governor Lisa Cook, a case which is likely to end up before the U.S. Supreme Court.

Investors are keenly following the unprecedented legal battle as it could upend the central bank's long-held independence.

Geopolitics is also back in the agenda after Poland said scrambled its own and NATO air defences to shoot down drones following a Russian air attack on western Ukraine.

FED NEXT WEEK

Data on Tuesday showed the economy likely created 911,000 fewer jobs in the 12 months through March than previously estimated, suggesting job growth was already stalling before President Donald Trump's aggressive tariffs on imports.

While the report underscored cracks in the labour market, rate cut bets remained intact as investors looked past the backward looking data, noting that it does not provide any information about job creation since March.

"I think a 50 bp would do more damage than good for sentiment at this point," said Matt Simpson, a senior market analyst at City Index in Brisbane. "Besides, the Fed will want to save face and not fully succumb to Trump's wishes."

"Markets are pricing in three cuts over the next three meetings and the Fed is in a good position to play nicely with those expectations, or increase odds of cuts in 2026 - without succumbing to a 50 bp cut next week," Simpson said.

Investors have also been keeping an eye on politics across the globe, with focus on who will take over from Shigeru Ishiba as Japan's next prime minister as well as France's fifth prime minister in two years amid growing fiscal worries.

Indonesian rupiah held firm after tumbling 1% on Tuesday following the removal of highly respected finance minister Sri Mulyani Indrawati, a move that stunned markets.

"The fundamental risk is now tilted toward fiscal looseness amid growing protests and pressure to fund populist social programs," said InTouch's Williams.

(Reporting by Ankur Banerjee in Singapore; Editing by Shri Navaratnam)