The U.S. dollar saw a slight decline on Friday, following weaker-than-expected U.S. economic data and falling Treasury yields, although it remained on course for a fourth consecutive weekly gain against the euro. The movement comes after a week of mixed signals in global financial markets, with speculation mounting over the Federal Reserve’s interest rate trajectory.

The dollar's drop followed a series of downside surprises in U.S. economic indicators released earlier in the week. These data reinforced expectations among investors that the Federal Reserve could cut rates at least once before the end of the year. The market is currently pricing in about 59 basis points of rate reductions by December, up from 49 basis points previously. There is also now a 40% probability forecast for a quarter-point cut as early as July, according to interest rate futures.

In parallel, U.S. Treasury yields extended their declines. The benchmark 10-year yield decreased by 7 basis points overall this week and was down 5 basis points in London trading, settling at 4.41%. The two-year yield also slipped, declining by 3.5 basis points to reach 3.94%.

These factors contributed to the U.S. dollar index, which tracks the currency against a basket of peers, slipping 0.2% to 100.51. Despite this, the index is still set to log a small weekly gain, bolstered by a sharp 1.3% surge registered on Monday. The gains earlier in the week were triggered by developments in the ongoing U.S.-China trade negotiations, though this momentum faded following weaker data later in the week.

Against the euro, the dollar was set for its fourth week of appreciation, despite falling 0.2% on Friday to $1.1209. The euro ended the week down approximately 0.34%. Earlier in the year, the euro saw periods of relative strength, particularly after significant investment announcements in Germany and concerns over the dollar’s safe haven status after “Liberation Day” in early April.

In contrast, the dollar’s performance versus the Japanese yen reversed. It declined 0.45% during the session and looked likely to post a weekly loss of 0.15%, snapping a three-week rising streak. This shift followed a report of lackluster economic growth in Japan and dovish comments from a Bank of Japan policymaker. The upcoming meeting between Japanese Finance Minister Katsunobu Kato and U.S. Treasury Secretary Scott Bessent could add further direction, as currency exchange matters are expected on the agenda.

The South Korean won continued to show volatility after a series of sharp gains earlier in the week. The U.S. dollar dropped 0.31% to 1,391 won after reports indicated that U.S. and South Korean officials discussed the dollar/won market this month. The episode drew parallels to recent fluctuations in the Taiwan dollar, as authorities across Asia continue to monitor currency markets closely amid ongoing trade and policy uncertainties.

Financial strategists, including some at major investment firms, noted that the relationship between dollar short-term rates and currency strength has become more unpredictable in recent months. With markets recalibrating their expectations for U.S. monetary policy, analysts see potential for further dollar weakening against both the euro and yen in coming months.

Broader trends show that investors are considering diversifying into European and Japanese assets, particularly equities and bonds, even though this may mean forgoing some yield advantage from U.S. interest rate differentials. Recent weeks have underscored how closely global currency markets remain tied to economic data releases and central bank outlooks.