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The dollar was licking wounds against peer currencies on Friday after a downward revision to U.S. GDP for the first quarter suggested room for rate cuts this year, while investors braced for inflation data.

Official data showed overnight that the U.S. economy grew at an 1.3% annualised rate from January through March, down from the advance estimate of 1.6% after downward revisions to consumer spending.

U.S Treasury yields, which had boosted the greenback to its highest since May 14 at 105.17 on Thursday as they marched to multi-week peaks, slipped on the revised GDP data. [US/]

The dollar index, which measures the currency against six major peers, consolidated around 104.82 after dipping as low as 104.63 overnight.

The data revisions, as well as comments by New York Fed President John Williams that monetary policy is helping to bring down inflation, have revived hopes for a cut sooner rather than later, said Matt Simpson, senior market analyst at City Index.

Markets currently priced in a 55% chance of rate cuts to begin in September, up from 51% a day before, according to the CME Group's FedWatch Tool.

The market now prepared for the release of the Fed's preferred measure of inflation, the Personal Consumption Expenditures (PCE) price index, for further indications on how the central bank might proceed with interest rate cuts later this year.

Softer U.S. consumer price inflation data earlier in May rekindled rate cut expectations for this year, weakening the dollar across the board and setting it on track to post its first monthly losses in 2024.

But expectations for interest rate reductions this year have wobbled amid signs of sticky inflation, most recently with a surprise uptick in consumer sentiment in data on Tuesday.

"It's all down to today’s PCE inflation report now as to where markets head next... I still think there may be an upside surprise in the PCE report that could quickly reverse Thursday’s moves," said City Index's Simpson.

Against the greenback, the yen held around 156.72, remaining off Wednesday's four-week low of 157.715 per dollar.

Data on Friday showed core consumer inflation in Japan's capital accelerated in May but price growth excluding the effect of fuel eased, heightening uncertainty on the timing of the central bank's next interest rate hike.

"May’s rebound in inflation in Tokyo largely reflects a jump in electricity inflation that has further to run, but underlying inflation will continue to moderate," Marcel Thieliant, Head of Asia-Pacific at Capital Economics, wrote in a note.

"All told, the Tokyo CPI leaves us confident that nationwide underlying inflation will fall below 2% as soon as July."

The yen has steadily marched closer toward the 34-year trough of 160.245 from a month ago, a level which market players suspect triggered two rounds of dollar-selling intervention by Tokyo.

Those suspicions may be confirmed when Japan's Ministry of Finance releases official figures on currency intervention in the Asian evening.

Japan's finance minister repeated warnings about excessive currency moves in the Asian morning.

The offshore Chinese yuan was up 0.08% versus the greenback to 7.2490 as traders digested an official factory survey that showed China's manufacturing activity fell in May.

The unexpected contraction keeps alive calls for fresh stimulus as a protracted property crisis continues to weigh on businesses, consumers and investors.

Elsewhere, the euro edged down 0.1% to $1.082225 after touching a two-week low of $1.07885 overnight.

Price data for the euro zone is due on Friday, following a stronger-than-expected April inflation reading for Germany on Wednesday.

Sterling was last trading at $1.2725, down 0.06% on the day, after reaching $1.2801 on Tuesday for the first time since March 21.

In cryptocurrencies, bitcoin last fell 0.23% to $68,313.58.