The dollar fell 0.33% to near one-month lows Thursday, closing at 101.77, as markets considered whether the Federal Reserve might slow or even pause its tightening cycle later this year, which would weaken the dollar's safe-haven appeal.

Ed Moya, senior market analyst at Oanda, said, "The market has become more optimistic that the Fed will not tighten monetary policy too aggressively, and the sell-off we've seen in some risk assets may have gone a bit too far, particularly in equities." He said: "That has pushed risk assets up a little bit, which is very good for risk trading, and that's actually bad for the dollar."

The dollar index hit a nearly 20-year high above 105 earlier this month, but signs that the Fed's aggressive action may already be slowing economic growth have prompted traders to scale back tightening bets and U.S. bond yields (colonies) to retreat from multi-year highs. "While this is not the underlying view of our economic team ...... we believe the Fed may believe that reaching the 1.75%-2% level would allow for a normalization of policy and then have the opportunity to pause and assess its impact on employment and inflation," JPMorgan strategists at Chase said in a client report.

Data released Thursday confirmed that the U.S. economy shrank in the first quarter, hurt by a record trade deficit and a slightly slower pace of inventory build-up than in the fourth quarter. A separate report showed that U.S. initial jobless claims fell last week, indicating continued tightness in the labor market.

On Thursday, the euro rose 0.4% against the dollar to 1.0731; the dollar fell 0.15% against the yen to 127.07. Risk-related currencies shook up slightly, with the Australian dollar rising 0.14% against the dollar to close at 0.7096 and the New Zealand dollar rising 0.09% against the dollar to close at 0.6478.

The pound rose to a three-week high of $1.26165 against the dollar at one point as Britain announced a 25 percent windfall profits tax on oil and gas producers' profits, along with a 15 billion pound ($18.9 billion) package of support for households struggling to pay soaring energy bills. The pound ended the day 0.21% higher against the dollar, closing at 1.2602.

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