Investing.com – The U.S. dollar rose slightly in early European trading on Friday, rebounding from losses in the previous session ahead of key inflation data that could impact future interest rate expectations.

At 04:30 ET (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 104.735, after falling to 104.63 overnight.

The dollar weakened after frail GDP data

The dollar weakened on Thursday after official data showed it grew at an annualized rate of 1.3% in the first quarter, compared with an earlier estimate of 1.6%.

This sign of slowing growth has markets pricing in a 55% chance of rate cuts starting in September, down from 51% a day earlier, according to CME Group’s (NASDAQ:) FedWatch Tool.

However, inflation remains a concern for the Federal Reserve, with many officials cautioning against expectations of early interest rate cuts.

Federal Reserve Bank of Dallas President Lorie Logan said Thursday that while she believes inflation continues to move toward the Fed’s 2% target, it is too early to consider cutting interest rates.

With that in mind, investors are waiting for confirmation from Friday’s data, the Fed’s preferred measure of inflation, that inflation remains sticky.

The euro loses after frail retail sales in Germany

In Europe, shares fell 0.1% to 1.0823 after falling more than expected in April, falling 1.2% from the previous month.

It illustrates the difficulties for consumers in the euro zone’s largest economy as they prepare for next week’s interest rate cut.

However, there is uncertainty about the central bank’s future interest rate decision, which puts a lot of pressure on the May euro zone inflation release later in the session.

Inflation is expected to rise by 2.5% on the year, up from 2.4% in the previous month, but there is potential for a rise given Germany’s stronger-than-expected April inflation reading on Wednesday.

fell 0.2% to 1.2712, falling from 1.2801 on Tuesday for the first time since March 21.

Japan’s CPI remains frail

In Asia, shares rose 0.3% to 157.23, rebounding after a pointed decline in overnight trading.

data from Tokyo showed that inflation in the Japanese capital rose in May as expected, although it still remained relatively low. Soft inflation bodes ill for the yen as it gives the Bank of Japan less impetus to start raising interest rates.

it was up 0.2% at 7.2438, back to six-month highs from earlier this week.

Purchasing Managers’ Index data showed business activity in China deteriorated in May after improving somewhat in the past two months. unexpectedly returned to the decline zone, while the non-manufacturing PMI grew at a slower than expected pace.

While the readings showed that China’s economy was back in trouble, they also fueled hopes that Beijing would spend more to stimulate economic growth. However, the said spending, which is likely to mean looser monetary conditions, probably bodes ill for the yuan.