The U.S. dollar weakened on Thursday as softer-than-expected economic data and dovish comments from Federal Reserve officials led traders to scale back expectations for another rate increase. The dollar index, which tracks the greenback against six major currencies, fell 0.3% to 104.20 by 10:00 a.m. ET. CME Group’s FedWatch tool showed markets pricing in a 30% chance of a 25-basis-point hike in September, down from 45% a week earlier, reinforcing the view that the Fed may pause its tightening cycle as inflation cools. Sterling also came under pressure after the Office for National Statistics reported that the UK economy contracted 0.1% in the second quarter, below expectations for flat growth. The pound fell 0.4% against the dollar to $1.2730 and weakened 0.2% against the euro to €0.8730 as investors assessed the risk of a possible UK recession. The move in the dollar may offer some support to emerging-market currencies and dollar-priced commodities, though analysts cautioned that the Fed’s next steps remain dependent on incoming inflation data. The weaker UK growth reading, meanwhile, adds to the case for the Bank of England to pause its own rate-hiking cycle, a backdrop that could keep sterling under pressure in the near term.