The dollar was holding near a seven-month low against the euro on Friday after Fed chief Ben Bernanke gave the clearest sign yet the central bank's two-year campaign of raising interest rates may be coming to an end.
The yen eased from a three-month high against the dollar hit the previous day despite a barrage of upbeat Japanese economic data that reinforced expectations that the Bank of Japan could raise interest rates from zero as soon as July.
The US currency fell broadly on Thursday after Federal Reserve Chairman Bernanke said in congressional testimony that a pause in rate increases may happen "at some point in the future".
He also dealt a blow to the dollar by saying that global imbalances - interpreted by the market to mean the gaping US trade deficit - may affect the currency.
"It's a continuation of the move lower since the beginning of this week," said Tohru Sasaki, chief forex strategist at J.P. Morgan Chase Bank in Tokyo. "Because of the G7 statement, the dollar didn't go up even though we had very strong data from the US"
The dollar has fallen 1.5 percent against the euro this week since finance ministers of the Group of Seven major powers urged China and other Asian countries to let their currencies rise.
Bernanke denied that the G7's statement was meant as a call for a weaker dollar, but many market players and analysts were not convinced.
"It simply doesn't make sense to have the dollar rising if you want to mend global imbalances," said Seiya Nakajima, chief economist at Itochu Corp "G7 nations seem to be accepting a gradual fall in the dollar."
An end to the Fed's current cycle of hiking rates would remove a pillar of support for the dollar that helped it rally in 2005, especially with both the euro zone and Japan expected to tighten policy this year.
For clues about the future of US rates, traders were awaiting economic growth figures for the first quarter. Economists forecast the data to show the economy expanded at a healthy annualised rate of 4.9 percent.
The euro was little changed at $1.2530, near a seven-month peak of $1.2549 hit the previous day. The dollar was trading around 114.35 yen, up from 114.10 in late US trade and compared with a three-month low of 113.83 hit on Thursday.
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