Dollar edges higher but still set for biggest weekly loss since May

© Reuters. FILE PHOTO: A trader shows U.S. dollar notes at a currency exchange booth in Karachi, Pakistan December 3, 2018. REUTERS/Akhtar Soomro

By Saqib Iqbal Ahmed and Ritvik Carvalho

NEW YORK (Reuters) - The dollar edged higher on Friday, as upbeat economic data helped reverse some of the losses from earlier this week when dovish remarks by the U.S. Federal Reserve scuttled a month-long rally in the U.S. currency.

The dollar index, which measures the greenback against a basket of six currencies, was 0.1% higher at 91.966. The index was down 1% for the week, on pace for its worst weekly performance since the first week of May.

(Graphic: Dollar index set for worst week since May: https://fingfx.thomsonreuters.com/gfx/mkt/mopanmyekva/DXY.png)

The greenback's downtrend began after Fed Chair Jerome Powell wrong-footed dollar bulls following a policy meeting this week by saying that rate increases were "a ways away" and the job market still had "some ground to cover".

"While the dollar suffered a notable setback this week, how significant it could prove may be gleaned by nonfarm payrolls next week," said Joe Manimbo, senior market analyst at Western Union (NYSE:WU) Business Solutions in Washington.

On Friday, the dollar found some support after data showed U.S. consumer spending rose more than expected in June as COVID-19 vaccinations boosted demand for travel-related services and recreation, even though part of the increase reflected higher prices, with annual inflation accelerating further above the Federal Reserve's 2% target.

The euro was 0.07% lower against the greenback but near a 1-month high, after data showed the euro zone economy grew faster than expected in the second quarter, pulling out of a recession caused by the pandemic, while inflation shot past the European Central Bank's 2% target in July.

Elsewhere, the Chinese yuan has recovered all of its losses from Tuesday's plunge to trade at 6.4609 per dollar.

Sentiment was helped by China's attempt to calm frayed investor nerves by telling foreign brokerages not to "overinterpret" its latest regulatory actions.

With investors shying away from riskier assets on Friday, both the Australian and New Zealand dollars, were down on the day, but remained near two-week highs.

Sterling hovered close to a one-month high versus the dollar on Friday and was on course for its strongest week since December ahead of a Bank of England meeting next week.