The dollar retreated against the euro and yen on Thursday after weaker-than-expected U.S. manufacturing data dampened expectations for further aggressive interest rate hikes by the Federal Reserve. The Institute for Supply Management (ISM) index fell to 50.8 in April, below economists’ forecasts and raising concerns about the strength of the U.S. economy.

The euro rose to a high of $1.2880, while the dollar fell to 116.25 yen. The weaker data also impacted U.S. Treasury yields, which declined across the board. Investors are now reassessing the likelihood of the Federal Reserve continuing its tightening cycle at the same pace.

Analysts suggest that further weak economic data could lead to a more cautious approach by the Fed, potentially slowing down the dollar’s appreciation. Market participants will be closely watching upcoming economic releases for further clues about the health of the U.S. economy and the future direction of monetary policy.