Dollar Drops for Second Straight Day, Set for Weekly Gain

The dollar fell for a second straight session on Friday. The greenback still held onto a weekly gain, boosted by a strong start to the week after upbeat US economic data and hawkish comments from Federal Reserve officials.

The euro rose to around $1.09, recovering from a week low hit on Thursday. Sterling also climbed past $1.27. Both moves came as traders adjusted positions ahead of the weekend, though volume was light.

The dollar index remains on track to close higher for the third time in four weeks. The rally earlier in the week was driven by stronger-than-expected payrolls and ISM services data, which pushed back expectations for a September rate cut. Fed speakers, including Governor Michelle Bowman, reinforced the message that rates may need to stay higher for longer.

The two-day decline reflects a pullback in Treasury yields and some profit-taking after the index hit its highest level in nearly two weeks on Wednesday. The 10-year yield slipped below 4.0% on Friday, taking some momentum out of the dollar.

Next week brings the US consumer price index report for July, due Wednesday at 8:30 a.m. ET. The producer price index and retail sales figures are also on the calendar. Those releases will shape the narrative heading into the August Jackson Hole symposium.

The dollar's weekly performance has been closely tied to the relative resilience of the US economy. A hot CPI print could reignite the dollar rally, while a soft number might open the door for a deeper pullback. For now, the market is pricing a roughly 30% chance of a rate cut in September, down from 70% a month ago.