Investing.com – The U.S. dollar fell on Friday but remained on track for robust weekly performance, helped by expectations for better U.S. economic performance and therefore fewer interest rate cuts by the Federal Reserve this year.

At 04:20 ET (09:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.3% lower at 108,900, retreating after hitting a more than two-year high in the previous session.

The dollar remains robust

The index is on track for a weekly gain of about 1%, which would be its best weekly performance in more than a month as investors continued to take into account a more hawkish Fed stance and a resilient U.S. economy.

U.S. manufacturing activity data for December, as determined by , came in stronger than expected on Thursday, setting the stage for a more widely watched release from the Institute for Supply Management expected later in the session.

A slight cooling can be seen to 48.2 last month, down from a five-month high of 48.4 in November. It was the eighth month in a row that the index was below the 50-point threshold, although the index remained above the level of 42.5, which ISM says indicates broader economic expansion.

Markets will also be looking forward to the significant monthly jobs report due slow next week and the next Fed meeting later this month.

“Markets fully expect a halt in January,” ING analysts said in a note. “If indeed the scatterplot works as a benchmark for interest rate expectations over the next three months, the bar is set higher for a data surprise that seriously threatens the dollar’s large exchange rate advantage.”

The euro is rebounding, but it faces a robust weekly decline

In Europe, the rate rose 0.2% to 1.0282, rebounding after falling almost 1% in the previous session to its lowest level in more than two years.

According to data published on Friday, the common currency was supported by a smaller-than-expected decline in the number of unemployed people in December.

However, the euro continued to head towards a weekly decline of around 1.5%, its worst since November, after data released earlier on Thursday showed the euro zone’s year-end decline was faster.

Traders expected further interest rate cuts compared to 2025, with markets pricing in an easing of interest rates of at least 100 basis points.

traded 0.2% higher at 1.2406, after falling more than 1% on Thursday, and is on track to lose roughly 1.4% for the week.

Interest rates remained unchanged last month after consumer prices rose above target and investors expect cuts from the Bank of England of around 60 basis points in 2025.

Yuan Loses Following PBOC Interest Rate Cut Report

In Asia, the price rose 0.7% to 7.3523, reaching its highest level since September 2023.

The Financial Times reported that the PBOC will make further interest rate cuts in 2025 as the central bank moves to a more conventional monetary policy structure under a single benchmark interest rate.

The monetary policy reform comes after a series of liquidity measures largely failed to stimulate China’s economy over the past two years.

fell 0.2% to 157.18, after hitting a more than five-month high in slow December amid a mostly dovish outlook for 2025 from the Bank of Japan.