(fxcue news) - The U.S. dollar drifted lower on Monday, and touched a one-year low against the Japanese currency, amid speculation the Federal Reserve might consider a larger reduction in interest rate in the wake of recent inflation readings and other economic data. The Fed is all set to announce its first interest rate cut for more than four years on Wednesday, but the size of cut is shaping up to be a close call. On Friday, former New York Fed President Bill Dudley said that there was a strong case for a 50-basis point reduction. He said rates are currently 150-200 basis points above the so-called neutral rate for the U.S. economy, where policy is neither restrictive nor accommodative. The Bank of England is expected to leave rates on hold at 5% on Thursday and investors would be watching for a decision over the pace of its bond sales. The Bank of Japan meets on Friday and is widely expected to hold rates steady, but a majority of economists still expect an increase by year-end. The Federal Reserve Bank of New York released a report today showing regional manufacturing grew for the first time in nearly a year in the month of September. The New York Fed said its general business conditions index surged to a positive 11.5 in September from a negative 4.7 in August, with a positive reading indicating growth. Economists had expected the index to inch up to a negative 3.9. With the sharp increase, the index returned to positive territory for the first time since hitting a positive 9.1 last November. The much bigger than expected increase by the headline index partly reflected a significant turnaround by new orders, as the new orders index spiked to a positive 9.4 in September from a negative 7.9 in August. The dollar index dropped to 100.59, and was at 100.68 a little while ago, down 0.43% from the previous close. Against the Euro, the dollar weakened to 1.1134 from 1.1076, and eased to 1.3217 against Pound Sterling, losing about 0.7%. Against the Japanese currency, the dollar weakened to 140.58 yen from 140.83. The Aussie gained marginally against the U.S. dollar, fetching US 0.6752 a unit. Against Swiss franc, the dollar dropped to CHF 0.8448, about 0.5% down from Friday's close. The Loonie settled at 1.3588 a unit of the U.S. currency.