The US dollar fell against most major currencies on Friday as expectations for additional Federal Reserve rate hikes eased slightly following the latest economic data and lower oil prices, allowing the Japanese yen which remains in a zone that could trigger official intervention to regain some strength.

Despite the decline, the dollar remained on track to end the week higher and was still heading for its strongest monthly performance since July 2025, with gains of just over 2.3%.

Data released on Thursday showed that one of the key US inflation indicators came in line with economists expectations. At the same time, oil prices fell more than 3% on Friday, helping cool market expectations for further interest rate increases.

Dollar selling is expected to remain limited for now, as investors continue to focus on interest rate differentials among major economies. Traders still expect the Federal Reserve to raise rates given the strength of the US economy, while lower energy prices have pushed back expectations for near-term policy moves by institutions such as the European Central Bank.

Weve seen some profit-taking, perhaps related to month-end flows, but I think the current dollar move could extend a little further, said Nick Kennedy, FX strategist at Lloyds Bank in London.

Overall, interest rate differentials are once again driving market movements, he added.

The US Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.3% to 101.19 after gaining momentum during the European session in London.

The index had already pulled back slightly from the more-than-one-year high reached earlier this week.

The euro rose about one-third of a percent to $1.13321, while sterling gained 0.25% to $1.3219.

US money markets are fully pricing in a 25-basis-point Federal Reserve rate hike by the end of the year.

Japanese yen remains in the danger zone amid intervention concerns

The Japanese yen rose 0.1% against the dollar to 161.60 per dollar after weakening to a two-year low of 161.95 on Thursday. A move beyond 161.96 would place the Japanese currency at its weakest level since 1986.

Many market participants view a move beyond 160 per dollar as a red line for Japanese officials that could trigger intervention in the foreign exchange market.

Several banks rushed to revise their forecasts for the timing of the next Bank of Japan rate hike after data released on Friday showed Tokyo core inflation accelerated in June, providing additional support for the yen.

Kamal Sharma, Head of G10 FX Strategy at Bank of America, said there are reasonable arguments for why Japanese authorities have not intervened so far.

The yen is not the currency experiencing the most significant move. By G10 standards, we have not seen particularly sharp or excessive moves specifically tied to the yen, Sharma said.

He added: The market is positioned short yen, but the pace of the move may not yet justify intervention.

USD/JPY has risen only 0.17% so far this week.

In other currency markets, the Australian dollar slipped 0.14% to US$0.6901.

Meanwhile, Bitcoin edged up 0.2% to $59,481, trimming earlier gains after falling earlier this week to its lowest level since September 2024.