The U.S. dollar edged lower during early trading on Friday but remained poised to secure its second straight weekly gain. A stream of upbeat economic indicators continued to reinforce the belief that the Federal Reserve will hold off on interest rate cuts for now.

As of 04:15 ET (08:15 GMT), the Dollar Index—which tracks the greenback against six major currencies—was down 0.4% at 98.100. Still, it was on pace to finish the week up by approximately 0.7%, extending gains of nearly 1% from the prior week.

Greenback Benefits From Strong Economic Signals

Investor demand for the dollar has stayed firm, fueled by signs of ongoing economic strength in the U.S., which is bolstering the case for the Fed to maintain higher interest rates longer than initially anticipated.

Fresh data on Thursday revealed that retail sales climbed more than forecast in June, while initial jobless claims dropped to their lowest level in three months—both highlighting resilience in the consumer sector.

Earlier this week, figures showed consumer prices increased at their fastest pace in five months, raising the possibility that new tariffs may be contributing to a slight uptick in inflation.

“One of our key calls this summer is that this return to dollar ‘functionality’ reduces the likelihood of new selloffs – unless Trump fires Fed Chair Jay Powell (as Wednesday’s brief dollar collapse showed) or escalates protectionism beyond markets’ current tolerance, particularly against China,” noted analysts at ING in a research note.

“We don’t expect either, and still see some dollar support in the coming months as the 14bp priced into the Fed’s September contract unwinds,” they added.

Market pricing currently reflects around 45 basis points of Fed rate cuts for the remainder of the year—slightly less than the 50 basis points priced in earlier this week.

Friday’s economic docket includes U.S. housing data and the University of Michigan consumer sentiment surveys.

Weak U.K. Growth Data Hits Pound, Euro Recovers

The euro climbed 0.3% to 1.1623 against the dollar, bouncing back after hitting a three-week low of 1.1556 on Thursday. However, it was still facing a 0.6% decline for the week.

German producer price data matched expectations, falling 1.3% year-over-year in June, while eurozone inflation held steady at 2.0%, consistent with the European Central Bank’s target.

Despite subdued inflationary trends in Germany—the bloc’s largest economy—any monetary policy easing by the ECB could be complicated by President Donald Trump’s proposed 30% tariffs on EU imports.

After its June policy meeting, the ECB signaled a likely hold on rates this month. However, ING suggested there’s still potential for surprises.

“That said, the ECB meeting may prove less dull than expected,” said ING. “A cut is highly unlikely given recent communication, but tariff risks and a strong euro could revitalise a dovish front that otherwise seemed settled on a neutral pivot.”

Meanwhile, GBP/USD edged up 0.2% to 1.3432 but was still on track for a 0.5% weekly drop. U.K. economic indicators—including a surprise uptick in the unemployment rate and a monthly contraction in GDP for May—have strengthened expectations for further rate cuts by the Bank of England.

Yen Under Pressure from Political Concerns

The dollar rose 0.1% to 148.63 yen, with the Japanese currency heading toward a 0.8% weekly decline. Markets reacted to signs that Japan’s ruling coalition may lose its parliamentary majority, which could give more power to opposition groups pushing for cuts to the consumption tax to ease the strain of inflation.

Inflation data out Friday showed core CPI in Japan eased slightly in June but still remained above the Bank of Japan’s 2% goal.

Aussie, Yuan Also Active

In other currencies, the Australian dollar gained 0.5% to 0.6516, rebounding after falling to its lowest point in over three weeks following weaker-than-expected employment data, which heightened bets on a Reserve Bank of Australia rate cut.

The Chinese yuan also saw minor movement, with USD/CNY dipping 0.1% to 7.1782.

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