The dollar fell on Friday as oil prices eased, but was poised for a second straight weekly advance on growing rate hike bets, while the yen rallied after Japan said Tokyo and Washington remain committed to the stance behind July's joint intervention.
The dollar was on track to snap a four-day streak of gains as crude prices fell more than 1%.
Global oil prices have eased but still they remain above $100 a barrel, maintaining upward pressure on inflation.
Comments from central bank officials flagging inflation concerns and support for more rate increases after last week's rate hike of 25 basis points have boosted market expectations for a more aggressive path of monetary policy and helped spark a jump in US Treasury yields.
"We've had like a pretty aggressive rally in the dollar over the last couple of days and maybe it's a little stretched, just taking a little breather. So I wouldn't really say that the dollar is really weakening materially today," said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.
"It's just a combination of those factors that you have not only a slight increase in odds of a second hike before year-end, but also just general bond yields going up and the market getting a bit concerned about that, so that's really what we have, what's been driving the dollar stronger overall."
DOLLAR INDEX POISED FOR BIGGEST DROP IN THREE WEEKS
The dollar index, which measures the dollar against five other currencies, fell 0.34% and was on track for its biggest daily percentage drop since September 3, to 100.95. The euro was up 0.2% at $1.1402 but on pace for a third straight weekly decline.
Expectations for a rate hike from the Fed at its October meeting stood at about 66%, according to CME FedWatch, up from about 58% a week earlier.
On the data front, new orders for US-manufactured capital goods increased more than expected in August and data for the prior month was revised sharply higher, pointing to another quarter of robust growth in business spending as part of artificial intelligence infrastructure is created.
In a separate report, the University of Michigan's Surveys of Consumers said its Consumer Sentiment Index ticked up to 48.1 from the prior reading of 47.8, above the 47.6 estimate of economists polled by Reuters.
Sterling strengthened 0.24% to $1.3247, supported by hawkish comments from Bank of England Governor Andrew Bailey. Yet it remained close to a three-month low hit on Thursday.
YEN STRENGTHENS AS JAPAN STEPS UP INTERVENTION WARNINGS
The Japanese yen strengthened 1.09%, on pace to snap a four-day streak of declines and its biggest daily gain against the dollar since September 7, to 157.13.
The currency rose after Japan's Finance Minister Satsuki Katayama said US President Donald Trump raised concern about yen weakness during a summit with Japanese Prime Minister Sanae Takaichi earlier this week.
Katayama said this reaffirmed the shared US-Japan stance behind July's joint intervention, adding she and Treasury Secretary Scott Bessent would stay in close contact as policymakers stepped up warnings over renewed yen weakness.
Still, the yen was on track for a second weekly fall, after markets judged the Bank of Japan's rate hike last week to a 31-year high and its latest guidance as insufficiently hawkish.
Elsewhere, the dollar strengthened 0.14% to 6.725 versus the offshore Chinese yuan, as a Trump-Xi summit in Washington showed no signs of breakthroughs at a closed-door meeting on thorny issues such as AI, trade, Taiwan and the Iran war.
