The dollar rose on Friday for a second day after US data showed a slowdown in inflation and a rebound in regional factory activity, reinforcing views that the Federal Reserve will keep interest rates steady.
The dollar had slid against European currencies last week, hitting a 2-1/2-month low against the euro and an 18-month low against the pound on expectations that the European Central Bank and Bank of England would keep lifting rates.
But the dollar has clawed back this week, with the economy seemingly headed for a soft landing and the Fed seen maintaining the US currency's yield advantage with its 5.25 percent rate.
With tight ranges prevailing, the drop in volatility has prompted investors to sell low-yielding currencies like the yen to fund purchases of high-yielding currencies in the carry trade.
"It's almost a vicious circle. It's been quite volatile in narrow ranges, which makes for narrower ranges," said Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo. "On the macro level, it's very stable and people don't need to do stuff."
The yen also slipped after Bank of Japan Governor Toshihiko Fukui failed to give a clearer indication of whether rates could rise as soon as December to 0.5 percent from 0.25 percent following strong third-quarter growth data earlier in the week.
The dollar climbed to 118.42 yen from late New York trade near 118.25 yen on Thursday, inching closer to this month's peak of 118.60 yen. The euro changed hands at 151.25 yen after having matched 151.48 yen overnight, the strongest since the single currency was launched in 1999.
The euro was down at $1.2770 off the 2-1/2-month peak of $1.2901 struck last week and still mired in a broad range over the past six months between $1.25 and $1.30. Market players are also keeping an eye out for the Group of 20 gathering of finance ministers and central bankers in Melbourne over the weekend to see if any officials make comments on the yen's broad weakness.
At the September G7 meeting in Singapore, both Japanese and European officials said the yen should reflect Japan's economic recovery. The pound was at $1.8861 Sterling has lost more than 1 percent this week as soft economic data and the Bank of England's quarterly inflation report dented expectations for more BoE rate increases.
Thursday's batch of US data showed the core consumer price index slowing to a 2.7 percent year-on-year rise in October, down from a decade-high 2.9 percent pace in September and suggesting that the energy-driven jump in inflation may be reversing.
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