NEW YORK: The dollar headed for its best weekly performance in a month on Friday, as investors priced in the possibility of the Federal Reserve cutting rates more slowly next year, while sterling fell after a surprise contraction in UK economic activity.

The US currency also rose against the yen after reports that the Bank of Japan could forgo a rate hike at its meeting next week.

The dollar index, which measures the currency against six others, was up 0.075% at 107.04, set for a weekly gain of nearly 1%, its biggest in a month.

US data on Thursday showed the job market is gradually cooling in line with expectations, while producer price inflation helped reinforce the market’s current scenario of a Fed cut on Dec. 18, but a slower pace of reductions in 2025.

The dollar rose 0.62% to 153.585 yen its highest since late November. The yen has been the worst performer this week against the dollar, which has gained 2% on the Japanese currency.

Europe, the pound fell after data showed the UK economy shrank unexpectedly in October, adding to signs of a bigger-than-expected slowdown. The Office for National Statistics said the economy contracted 0.1% in October, compared with forecasts in a Reuters poll for growth of 0.1%.

Sterling was last down 0.39% at $1.2662, around its weakest since the start of the month.

The euro pared earlier losses against the dollar and rose 0.19% to $1.0486. The European Central Bank on Thursday cut rates by 25 basis points and kept the door open to further easing.

The Swiss franc remained under pressure after the central bank’s shock half-point rate reduction the day before. The dollar was last up 0.15% at 0.89395 francs.