By James Ramage

The dollar fell broadly on Friday, capping its second consecutive weekly decline, on the latest sign that the U.S. economy is losing momentum.

The Wall Street Journal Dollar Index, which tracks the greenback's value against a basket of 16 currencies, slumped 0.4% to 86.42 on Friday, on track to close at a seven-week low. The index is down 0.4% for the week and is 3.3% off its 12-year high on March 13.

U.S. orders for durable goods, excluding the volatile transportation categories, fell 0.2% in March, decreasing for a sixth straight month, the Commerce Department said Friday. That comes on the heels of downbeat readings on new-home sales, retail sales and industrial production.

This flurry of indicators pointing to a soft patch in U.S. growth has damped investors' enthusiasm for the dollar, which had soared in recent months on expectations that the Federal Reserve was poised to raise the benchmark short-term interest rate for the first time since 2006. Higher rates make currencies more attractive for investors.

But now investors are skeptical about the timing of any rate increase given the dimming outlook. That takes some of the shine off the dollar.

"We haven't seen the rebound in the data people have been looking for, which is being reflected in the dollar," said Vassili Serebriakov, currency strategist at BNP Paribas.

As a group, money managers have pared bullish dollar bets for four straight weeks, according to the U.S. Commodity Futures Trading Commission. The value of bets on a dollar appreciating against other currencies fell 5.1% to a four-month low of $37.2 billion for the week ended April 21. Although futures-market bets represent a small share of the currency market, analysts view them as an accurate proxy of how investors are positioned.

Investors will be eyeing a statement from the Fed's policymaking committee on Wednesday, and will be looking for clues on the possible timing of a rate increase. But this meeting doesn't involve a tweaking of economic forecasts or a news conference by Fed Chairwoman Janet Yellen, so it has "little room to shock the market," said Shahab Jalinoos, currency research analyst at Credit Suisse.

Also on Wednesday, the Commerce Department is scheduled to report a preliminary reading for first-quarter growth.

Next week investors will also be looking to indicators on inflation, consumer confidence and manufacturing.

On Friday, trading in fed-funds futures, an instrument used to bet on Fed policies, suggested that investors see a 56% likelihood of the Fed raising rates in December, according to CME Group. One month ago, investors saw a 57% chance of a rate increase in October. On Friday, the odds on an October increase were 42%.

While the headline number on durable-goods orders beat expectations, currency investors focused on underlying weakness. Orders for company spending on equipment and software slid 0.5%, falling for the seventh month in a row.

The dollar slid 0.4% against the euro, with one euro buying $1.0867 and remaining in a trading range that's held since early March. The dollar retreated 0.6% versus the yen to 118.90 yen. The U.S. currency has traded between 118 yen and 122 yen since early February.

Despite the recent weakness, many market watchers expect the dollar to eventually resume its rise.

"Because we're holding these [trading] ranges, that tells us people still predict the dollar will strengthen over the longer term," Mr. Serebriakov said.