Investing.com – The U.S. dollar weakened early in the European session on Friday after delicate data raised concerns about a keen slowdown in the world’s largest economy, potentially prompting the Federal Reserve to aggressively ease monetary policy.

As of 04:00 ET (09:00 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% to 103.997, extending a decline after a 1.7% drop in July, its weakest monthly performance this year.

Dollar weaker on recession fears

Overnight, data showed the US economy contracted at its fastest pace in eight months in July and the employment rate fell sharply, raising the risk of a US recession.

This also means that the risk for a key report due later in the session is on the downside.

Economists forecast the U.S. economy created 177,000 jobs in July, down from 206,000 the previous month.

The indicator, which has increased in each of the last three months, is expected to remain at 4.1%.

“We are bearish on the dollar today because a) data from the employment components of the ISM and NFIB surveys suggest that risks are tilted towards weaker wage print and b) once the equity turmoil and demand for safe-haven assets subside, macroeconomic factors should pull the dollar lower,” ING analysts said in a note.

“The July employment report will show the Federal Reserve the extent to which risks are tilted toward employment within its mandate.”

Pound falls after BOE cut

In Europe, the benchmark fell 0.1% to 1.2734, after earlier falling to 1.2708 for the first time since July 3, following the Bank of England’s decision to cut interest rates on Thursday.

Bank of England Governor Andrew Bailey voted 5-4 to cut interest rates by a quarter of a percentage point to 5%. He said the central bank would proceed with caution, suggesting a steady pace of cuts.

rose 0.3% to 1.0820, bouncing from a three-week low of 1.0777 overnight.

Data released on Thursday showed euro zone manufacturing activity continued to fall in July, suggesting interest rates will need to be cut again this year to stimulate the slowing economy.

“The eurozone calendar is empty today, and we are entering a period of seasonal calm not only in terms of data but also for ECB speakers. Given how weak activity indicators in the eurozone have been recently, this is probably a good thing for the euro,” ING said.

The yen is still rising

In Asia, the yen fell 0.3% to 148.84, while it continued to appreciate after a 15 basis point interest rate hike and signaled the possibility of further hikes in 2024, citing some improving trends in the Japanese economy.

fell 0.5% to 7.2071 and the yuan weakened as delicate PMI data heightened concerns about an economic slowdown.