The U.S. dollar slipped higher in early European trade Friday, but was heading for healthy weekly gains after Fed Chair Jerome Powell raised the possibility of further rate hikes to combat inflation.

At 03:20 ET (07:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, edged 0.1% lower to 105.727, remaining on course for a gain of almost 1% this week.

Hawkish Powell boosts dollar
The dollar has received a boost after Fed chief Powell warned on Thursday that the U.S. central bank stood ready to hike rates further to combat inflation, if necessary.

“[The Fed] is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time,” Powell said.

“We are not confident that we have achieved such a stance. If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

These comments followed similar remarks from a string of other Fed officials, and came a week after the U.S. central bank left interest rates steady and raised expectations that rates could have peaked, causing the dollar to tumble in the aftermath.

Traders still see a high probability of the Fed keeping rates steady when it meets in December for the final time this year, but some are now factoring in the possibility of a rate increase early next year.

Lagarde speech, U.K. GDP in focus
The European Central Bank also held interest rates steady at its meeting in late October, and President Christine Lagarde is due to speak later in the session.

EUR/USD edged higher to 1.0667, on track to lose 0.6% this week, with the latest eurozone business activity data, released at the start of the week, suggesting there is a growing chance of a recession in the region by the end of the year.

GBP/USD edged higher to 1.2224 after the data released earlier Friday showed that growth stagnated in the U.K. in the third quarter, although gross domestic product rose 0.2% on the month in September, slightly better than the flat figure expected.

The pair is still on course for a weekly loss of around 1.2%.

Traders on yen intervention watch
In Asia, USD/JPY rose 0.1% to 151.34, pushing past the 151 level and raising expectations of intervention in currency markets by Japanese authorities, as a dovish Bank of Japan contrasts sharply with the more hawkish tone from the head of the Federal Reserve.

USD/CNY rose 0.1% to 7.2930, with the yuan weak on growing concerns over an economic slowdown in China following a string of weak data prints for October.

AUD/USD edged lower to 0.6362, with the pair set to drop well over 2% this week after dovish signals from the Reserve Bank of Australia in the wake of its interest rate hike earlier this week.