- Upbeat euro zone data underpins euro
- Dollar headed for first weekly gain in nearly two months
- Focus on Fed meeting in May; rate hike priced in
SINGAPORE, April 21 (Reuters) - The U.S. dollar slipped against most major currencies on Friday, as investors digested mounting evidence that growth in the world's largest economy is slowing and priced in a likely pause in tightening by the Federal Reserve at the June meeting after a widely-expected interest rate hike next month.
In the case of the euro, a surprising recovery in the euro zone economy in April underpinned the currency.
The greenback, however, was headed for its first weekly gain in nearly two months on rate increase expectations for May.
"Expected growth differentials have narrowed slightly against the dollar in the last few hours, with better-than-expected purchasing manager indices pointing to more resilient economic activity in the UK and euro area," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
"We're also seeing a continued decline in implied volatility across most asset classes as investors position for an imminent end to the global monetary tightening cycle - and that is weakening demand for traditional safe havens," he added.
The dollar index, which measures the performance of the U.S. currency against six others, slipped 0.1% on the day to 101.70 and headed for a weekly gain of about 0.2%, its first since late February.
Elsewhere, the recovery in the euro zone unexpectedly gathered pace this month, thanks to a boom in services sector demand compensating for a deepening decline in manufacturing.
Preliminary surveys showed that same dynamic in Germany and France, the region's two largest economies.
The euro was last up 0.1% against the dollar at $1.095 , but recovered from a session low of $1.0938. Against sterling, it rose 0.4% to 88.46 pence.
But the story this week has been focused on the dollar as investors braced for the end of the Fed's tightening cycle. Fed officials have been at pains to point out that inflation remains uncomfortably high and rates must keep rising.
Money markets show traders believe there will be a quarter-point U.S. rate hike next month, which in theory is supportive of the dollar, followed by a pause in June. The rate futures market has also priced in rate cuts this year as the economy slows.
"Although economic activity is cooling, rate differentials are still dollar-supportive, and the U.S. remains the cleanest dirty shirt on the global economic landscape," Corpay's Schamotta said.
In other currencies, sterling fell 0.2% to $1.2412, having dropped by as much as 0.54% earlier on.
The yen was one of the stronger performers after data showed Japanese consumer inflation held steady above the central bank's target in March, putting pressure on the Bank of Japan (BOJ) to ditch its ultra-loose monetary policy stance.
Incoming Governor Kazuo Ueda chairs his first BOJ policy meeting next week.
The dollar fell 0.5% against the Japanese unit to 133.605 yen.
Reporting by Rae Wee; Editing by Jamie Freed
Source: Reuters