The dollar slumped against rivals on Friday on the back of weak factory inflation data, while the euro enjoyed solid support after the European Central Bank hinted that it could be gearing up to trim its massive monetary stimulus.
The dollar index, which tracks the greenback against a basket of six major rival currencies, edged down slightly to 91.814. A move below the January 2 low of 91.751 would put it at its weakest since September 20.
The index was on track to shed 0.2 percent for the week, pressured by data on Thursday that showed US producer prices fell for the first time in nearly 1-1/2 years in December, which could temper expectations that inflation will accelerate in 2018.
Against the yen, the dollar was almost flat on the day at 111.27, after plumbing a six-week low of 111.05 yen on Thursday. It was still down a steep 1.6 percent for the week in which the Japanese currency soared as a routine operational reduction in bond purchases by the Bank of Japan triggered speculation that the central bank would unwind its massive stimulus.
"Yen short positions had been building, and investors seem to be looking for opportunities to trim them," said Yutaka Miura, a senior technical analyst at Mizuho Securities.
While the domestic economy is in its best shape in years, tame inflation meant that most market participants aren't expecting Japan's central bank to explicitly shift its easy policy stance anytime soon. Japan's economy minister on Friday suggested it is possible for the government to declare an end to deflation before consumer prices reach the BOJ's 2 percent inflation target.
"The market is very cautious about the Bank of Japan's policy changes, but it is not expected that they will change their policies any time soon, since CPI is still lower than 1 percent," said Harumi Taguchi, principal economist at IHS Markit in Tokyo.
"It's not only for Japan, but for the ECB and US, that markets are sensitive about anything that suggests tapering," she said. The euro was up 0.2 percent at $1.2050, approaching its nearly four-month high of $1.2089 set last week. It was up 0.2 percent for the week. The single currency rallied on Thursday, after ECB policymakers said in minutes of the bank's December meeting that they could revisit their communication stance in early 2018, boosting expectations that they are preparing to reduce their vast monetary stimulus programme.
Investors took the relatively hawkish statement as a further signal that the ECB will wind down its 2.55 trillion euro ($3.07 trillion) bond purchase scheme this year if Europe's economy continues to hum along.
Bitcoin was up 2.8 percent at $13,618.78 on the Luxembourg-based Bitstamp exchange. It skidded over 11 percent in the previous session after the government of South Korea, a crucial source of global demand for cryptocurrency, said it is considering a plan to ban cryptocurrency trading.
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