The U.S. dollar weakened against most major currencies on Friday but remained on course for its strongest monthly performance in nearly a year as investors continued to weigh expectations for higher U.S. interest rates against easing inflation and lower oil prices.
The greenback slipped after fresh U.S. inflation data broadly matched market expectations, while a sharp decline in oil prices reduced expectations of more aggressive monetary tightening by the Federal Reserve.
The dollar index, which measures the U.S. currency against a basket of six major peers, fell about 0.3 percent to 101.19 after reaching its highest level in more than a year earlier in the week.
Despite the decline, the index remained on track to post a monthly gain of more than 2.3 percent, its strongest performance since July 2025.
Market participants continue to expect the Federal Reserve to raise interest rates by a quarter of a percentage point before the end of the year, supported by the resilience of the U.S. economy.
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At the same time, falling energy prices have reduced expectations of near-term interest rate increases by other major central banks, including the European Central Bank, helping to support the dollar.
“We have had a bit of profit taking, maybe because of month-end, but I think this move in the dollar could extend a bit more,” said Nick Kennedy, a currency strategist at Lloyds.
“In aggregate, rate differentials are driving things again,” he added.
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The euro rose around 0.3 percent against the dollar to trade near $1.1332, while sterling gained about 0.25 percent to $1.3219.
The Japanese yen also strengthened modestly, with the dollar falling 0.1 percent to around 161.60 yen after touching a two-year high of 161.95 yen the previous day.
The Japanese currency remains close to levels that investors believe could prompt intervention by Japanese authorities to slow its depreciation.
The 160-yen level has increasingly been viewed by markets as a threshold that could trigger official action, although analysts said the pace of the currency’s decline has so far been gradual.
Fresh data released on Friday showed core inflation in Tokyo accelerated in June, reinforcing expectations that the Bank of Japan could tighten monetary policy sooner than previously anticipated.
“The yen is not the stand-out move. We’ve not had, in G10 parlance, sharp and excessive moves that are specific to the yen,” said Kamal Sharma, senior G10 currency strategist at Bank of America.
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“The market is short yen, but the pace of this move is probably not conducive to intervening,” he added.
Elsewhere, the Australian dollar edged lower to around $0.6901.
Bitcoin traded little changed at about $59,500 after recovering slightly from its lowest level since September 2024 reached earlier in the week.
Analysts said investors remain focused on interest rate differentials, central bank policy signals and geopolitical developments as key drivers of currency markets heading into the second half of the year.
