The U.S. dollar fell in early European trade Friday, as traders fretted that the continued turmoil in the U.S. banking system could result in earlier-than-expected rate cuts by the Federal Reserve.

At 03:10 ET (07:10 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 101.23, having dropped more than 0.6% in the previous session.

The U.S. central bank raised interest rates on Wednesday, but hinted that this would be the peak of its year-long aggressive tightening cycle by removing the phrase that it “anticipates” further rate increases from its accompanying statement.

The Fed emphasized the importance of the upcoming data in its future decision-making, and thus the official jobs report due later in the session will be studied carefully.

However, the health of the country’s banking system is also a factor that traders are including as they price in more aggressive rate cuts from the Fed in the second half of the year.

Shares of PacWest Bancorp (NASDAQ:PACW) slumped on Thursday after the regional lender said it was exploring strategic options, including a sale, while Canada’s Toronto Dominion Bank (TSX:TD) called off its $13.4 billion takeover of First Horizon (NYSE:FHN), in another sign of stress within the sector.

This comes just days after regulators seized First Republic Bank and JPMorgan Chase (NYSE:JPM) agreed to buy its deposits and most of its assets.

EUR/USD rose 0.3% to 1.1038, the day after the European Central Bank hiked its benchmark interest rates by 25 basis points, with President Christine Lagarde signaling more tightening to come.

That said, German industrial orders fell significantly more than expected in March, slumping by 10.7% from the previous month, the largest month-on-month decline since 2020 at the height of the COVID-19 pandemic.

“EUR/USD remains close to the highs of the year as a Fed pause and simmering banking crisis cut the dollar’s short-term yield advantage over the euro,” said analysts at ING, in a note.

GBP/USD traded 0.5% higher at 1.2630, hitting a new one-year high, with the Bank of England remaining in a pitched battle with inflation.

Headline consumer price inflation in the U.K. last came in at 10.1%, which is five times the BOE’s mandate and well above the 6.9% headline rate in the euro zone and 5% in the U.S.

The BOE was the first to tighten back in December 2021, and is expected to increase rates a quarter point to 4.5% next week.

USD/JPY fell 0.1% to 134.08 in holiday-thinned trade, while AUD/USD rose 0.7% to 0.6743 as a report from the Reserve Bank of Australla reiterated that interest rates could still rise further, after its surprise hike earlier in the week.

USD/CNY rose 0.1% to 6.9115 after softer-than-expected service sector activity data raised further concerns over China’s post-COVID economic rebound.