Investing.com – The U.S. dollar strengthened in European trade on Friday, but was on track for a significant weekly decline after cooling inflation and feeble retail sales drew renewed attention to Federal Reserve interest rate cuts.

At 04:10 ET (08:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.2% higher at 104,580, slightly above a five-week low of just below 104 recorded earlier in the week.

The dollar stabilizes after the Fed’s hawkish speech

The dollar strengthened to some extent as several Fed officials, particularly members of the bank’s interest rate committee, said they needed much more certainty that inflation was falling, beyond some moderation in inflation in April.

“I now believe it will take longer than I previously thought to achieve our 2% goal,” Federal Reserve President St. Louis Loretta Mester, adding that further monitoring of incoming data will be necessary.

The president of the Federal Reserve Bank of New York, John Williams, agreed with this view.

“I don’t see any indicators that tell me that right now… there’s a reason to change the stance of monetary policy now and I don’t expect that, I don’t expect that I’ll get as much confidence as we need inflation is heading towards the 2% target in the near future future,” Williams said.

However, the dollar remains on track for a weekly loss of around 0.7% after softer-than-expected US data raised expectations for two rate cuts this year, likely starting in September.

In April, the US situation was also flat and weaker than expected, with industrial production unexpectedly falling.

“In our opinion, in the near term we may see further stabilization of USD rates while waiting for the next key data: April core PCE on May 31,” ING analysts said in a note.

The euro loses before the CPI release

In Europe, shares fell 0.1% to 1.0860 after hitting 1.0895 following the US inflation news, but the single currency is still up around 0.9% against the dollar this week.

The final reading will be released later in the session and is expected to show that inflation increased by 2.4% year-on-year in April.

Interest rates are widely expected to be cut in June, but investors are unsure how many more cuts, if any, the central bank will agree to over the rest of the year.

Traders have priced in 70 basis points of ECB cuts this year – much more than the just under 50 basis points of interest rate cuts the Fed has been projecting.

fell 0.1% to 1.2658 but is still on track to gain about 1% this week.

The Bank of England is also expected to cut interest rates this summer from a 16-year high, but volatility is likely to be constrained ahead of the release of key UK inflation data next week.

The yen loses after feeble Japanese GDP data

In Asia, it rose 0.3% to 155.87, close to breaking above 156, after weaker-than-expected first-quarter data from Japan.

quotations rose 0.1% at 7.2209, returning to six-month highs above 7.22 after data on Friday showed they rose more than expected in April, but growth slowed sharply while the decline in Chinese home prices accelerated last month.