Investing.com – The U.S. dollar edged lower in early European trade Friday, handing back some overnight gains, while sterling edged higher after the release of first quarter U.K. growth data.

At 03:15 ET (07:15 GMT), the , which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 101.785, on course to gain just under 1% this week, ending a two-week losing streak.

Data released Thursday showed the number of Americans filing for unemployment benefits jumped to a 1½-year high last week, while rebounded modestly in April.

This suggests the U.S. could pause its aggressive monetary tightening cycle in June, expectations that have weighed on the dollar for much of the year.

However, the dollar received a boost on Thursday, with the index climbing to its highest since May 2, on uncertainty surrounding the raising of the U.S. debt ceiling.

A meeting between U.S. President Joe Biden and top lawmakers about the subject that was scheduled for Friday has been postponed, and the U.S. federal government could run out of money to pay its bills as soon as June 1 unless the debt ceiling is raised.

“The dollar bounce seen yesterday was the result of some position-squaring and below-consensus data,” said analysts at ING, in a note, “while the still unstable risk environment caused by recessionary fears and the US debt ceiling stalemate keeps creating a breeding ground for more defensive positions in FX.”

Elsewhere, rose 0.2% to 1.2535, bouncing after data showed that U.K. grew by 0.1% in the first three months of 2023, despite an unexpectedly sharp drop of 0.3% in March.

The hiked interest rates by 25 basis points on Thursday, its 12th straight interest rate increase as it attempts to combat inflation still in double digits.

“While we don’t exclude one final June hike, our base case is that we have reached the peak of the BoE tightening cycle as inflation will start to rapidly decelerate this year,” added ING.

rose 0.2% to 1.0930, climbed 0.2% higher to 134.83, with the yen set for small weekly gains on safe haven demand, while fell 0.1% to 0.6694.

edged lower to 6.9463, but remained close to the psychologically important 7 level against the dollar on doubts about the strength and speed of the recovery of the Chinese economy.