The US dollar gave back its earlier gains on Friday following a hotter-than-expected core consumer price index (CPI) reading, which pushed traders to increase bets on a Federal Reserve rate hike next week. The Bloomberg Dollar Index was little changed after briefly touching its intraday high in the wake of the inflation data release.

An unexpected acceleration in a key US consumer price metric last month has strengthened the case for Fed officials to raise interest rates at their upcoming meeting. More Wall Street institutions, including TD Securities and Mitsubishi UFJ, have shifted to supporting a near-term rate increase, while fed funds futures traders now price in roughly a 90% probability of a hike at next week's Fed gathering.

Economists meanwhile expect the Bank of Japan to lift its benchmark rate at its forthcoming meeting and to follow up with another hike by January of next year, signalling a noticeably faster pace of policy normalisation.

The Canadian dollar slipped, with USD/CAD up 0.2% at 1.3863. Canadian Prime Minister Mark Carney stated that the latest US trade measures against Canada this week would hurt some businesses but that the overall effect would be “moderate,” suggesting Ottawa does not intend to retaliate.

The euro eased 0.1% against the greenback, trading at 1.1599, after Bank of France Governor Emmanuel Moulin described the current economic situation as worrying and urged the government and parliament to take action to address the budget deficit.

The British pound inched up 0.1% to 1.3528 against the dollar. UK growth for July once again significantly exceeded expectations, with signs emerging that artificial intelligence companies are beginning to contribute to economic expansion.