The dollar recorded a slight gain on Friday after falling in the previous session, as a surge in US jobless claims and a modest rise in inflation kept investors focused on upcoming Federal Reserve decisions regarding interest rate cuts next week and beyond.

The dollar index rose 0.1% to 97.66, after ending a two-day winning streak on Thursday, though it remains on track for a second consecutive weekly decline.

Thursdays data showed the largest weekly increase in new US jobless claims in four years, overshadowing August inflation data, which showed prices rising at the fastest pace in seven months but staying modest and broadly in line with expectations.

Although this mixed data may add some complications for policymakers at the Feds next meeting, investors attention remains fixed primarily on the path of rate cuts.

Dominic Bunning, head of G10 currency strategy at Nomura, said: The hurdle to faster rate cuts is labor market weakness, as long as inflation remains under control. I think the probability of a 50-basis-point cut next week is still very low.

Futures markets are pricing in an almost certain 25-basis-point cut at the September 17 meeting. However, traders have trimmed bets on a larger 50-basis-point cut, with expectations shifting toward a more modest easing path before year-end, according to the CME FedWatch tool.

In bonds, the yield on 10-year US Treasuries rose two basis points to 4.0338% from 4.011% at the previous close, after coming close to breaking below 4% on Thursday for the first time since April.

In the currency market:

The euro held at $1.1727 after rising yesterday, as traders reduced bets on further European Central Bank cuts, with expectations staying below 50% after the bank struck a relatively upbeat tone on the economic outlook.

The ECB kept its main interest rate at 2% for the second straight meeting, with President Christine Lagarde saying the economy is in a good place and risks are more balanced.

Markets are awaiting Fitchs review of Frances public finances late Friday after the September 8 confidence vote. Citi analysts said the agencys sovereign model may indicate a slight improvement, and that a manual downgrade would mean Fitch sees a further shift in the balance of power toward borrowers over creditors since its last spring review.

Against the Japanese yen, the dollar climbed 0.4% to 147.76, after the US and Japanese governments issued a joint statement stressing that exchange rates should be market-determined and that excessive volatility and disorderly moves are undesirable.

Sterling fell 0.2% to $1.3545 after data showed the UK economy stagnated in July.

The offshore yuan held at 7.1219 per dollar, down 0.1%.

The Australian dollar slipped slightly to $0.665 but stayed near a 10-month high.