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Dollar index rises on rate hike comments from Fed's Dudley

Frank van den Bergh | E+ | Getty Images

The dollar rose against a basket of currencies in mid-afternoon Friday trading after the head of the New York Federal Reserve, William Dudley, told the New York Times the U.S. central bank may raise interest rates twice in 2016 following weaker-than-expected April data on hiring.

The dollar index was last up 0.1 percent at 93.899 after it fell as much as 0.6 percent earlier Friday in reaction to news that U.S. employers added 160,000 workers in April, the fewest in seven months.

Earlier. the dollar dipped against a basket of currencies on Friday, though it recouped much of its losses tied to news of slower-than-expected domestic job growth in April which supported ideas the Federal Reserve would not raise interest rates in June.

"It doesn't bode well for global growth," said Charles St-Arnaud, currency strategist at Nomura Securities International in New York. "The Fed mostly likely won't be able to hike rates in June."

U.S. interest rate futures suggested traders saw a 7 percent chance of the Fed raising rates at its June 14-15 meeting , down from 14 percent on Thursday, Reuters data showed.

The initial selling of dollar linked to the latest payrolls report faded as some traders had scaled back their dollar holdings following a disappointing ADP private employment report on Wednesday, analysts said.

"The market already shifted down its expectations ahead of the release of the payrolls data. Investors are going flat heading into the weekend," St-Arnaud said.

While the job gains were below expectations, a bright spot in the report was a 0.3 percent increase in average hourly earnings.

"There is a tentative pickup in wage inflation so that's encouraging," said David Page, senior economist at AXA Investment Managers in London.

The dollar index recovered about 2 percent from a trough of 91.919 hit Tuesday, its lowest point since January 2015.

The greenback was 0.1 percent lower against the yen at 107.14 yen. Friday's decline snapped a three-day winning streak which it retraced from an 18-month low of 105.55 struck on Tuesday.

The euro, which rose to an eight-month peak of $1.1616 on Tuesday, was flat.

Some large funds have been cutting bullish bets on the dollar amid uncertainty over when the Federal Reserve will raise rates, analysts said.

Meanwhile, the Australian dollar shed 1.5 percent after hitting a two-month low of $0.7338. The Aussie was on track to fall 3.3 percent this week after the Reserve Bank of Australia slashed its inflation forecasts, hinting the door was open for another interest rate cut.