The dollar index was lower on Friday following two straight days of gains, after economic data showed a cooling in consumer spending, raising some doubt about the potential aggressiveness of the Federal Reserve.
The Commerce Department said consumer spending ticked up 0.1% in May while data for the prior month was revised to show spending accelerated by 0.6% versus the previously reported 0.8%. The personal consumption expenditures (PCE) gained 0.1% for the month after a 0.4% rise in April while advancing 3.8% on an annual basis, slowing from a revised 4.3% the prior month.
The Fed tracks PCE gauges for its 2% inflation target.
"Spending was weak, especially in inflation adjusted terms. Goods spending fell and even services spending looks to be sputtering," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
"Inflation is drifting lower. The off-ramp to 2% inflation is a long one, though."
The dollar index fell 0.377% at 102.920.
The index had risen 0.82% over the prior two sessions after comments from Fed Chair Jerome Powell and solid economic data heightened market expectations the central bank would raise rates two more times this year, while cooling the belief a rate cut could be in the cards by the end of the year.
Expectations for a 25 basis point hike at the Fed's July meeting dipped slightly, with markets now pricing in an 84.3% chance of a hike, down slightly from the 89.3% on Thursday, according to CME's FedWatch Tool.
The dollar index is up 0.4% for the quarter and is poised to snap a streak of back-to-back quarterly declines. For the first half, the greenback is off 0.5%.
The Japanese yen strengthened 0.23% was on track to snap a three-day run of weakening against the greenback at 144.41 per dollar, after briefly topping the 145 mark with a fresh 7-month high of 145.07.
Investors have been watching to see if the Bank of Japan (BOJ) will intervene in the currency again, which last happened at around the 145 mark as U.S. and Japanese central bank policy plans are likely to remain counter to each other.
The greenback is up nearly 9% for the quarter against the yen, which would mark its strongest in a year.
The pound is one of the best performing developed market currencies in the second quarter up, 2.5%, while the dollar index, which tracks the unit against six major peers, is up 0.8% on the quarter, set for its first quarterly gain since the third quarter of 2022.
The dollar's gains also helped it to as high as 145.07 yen in Asia trade Friday, its highest in seven months, and into territory at which Japanese authorities intervened to prop up their currency last autumn.
Japan's Finance Minister Shunichi Suzuki on Friday warned the country will take the appropriate steps should the yen continue to weaken, and against investors selling the yen too far, echoing similar comments from other government ministers and officials this week.
Earlier data showed core inflation in Tokyo ticked higher in June and remained above the BOJ's 2% target for the 13th month, keeping pressure on Bank of Japan policymakers to scale back their ultra-easy monetary policy.
In contrast, euro zone inflation data fell for a third consecutive month, but showed a small drop in underlying inflation and was unlikely to keep the European Central Bank from hiking rates at its July meeting.
The euro was up 0.42% to $1.091 while Sterling was last trading at $1.2692, up 0.63% on the day.
Data showed Britain's economy grew by just 0.1% in the first quarter, as inflation sapped disposable income in households.