The dollar was near a two-week low hit against a basket of currencies earlier on Friday, consolidating losses seen after a weak business activity survey cast doubt on whether the US economy will avoid a hard landing.
The dollar posted its biggest one-day percentage fall in almost three months on Thursday after the Philadelphia Fed's index of business activity in the Mid-Atlantic region fell to -0.7 in October, surprising analysts who had expected a rise to 7.0.
Before the release, investors had been increasingly confident that economic growth in the United States will slow in an orderly manner and that interest rates will not have to be cut soon.
"The Philly Fed certainly helped the dollar on its way lower, but the big move in the dollar happened without a similar movement in (fixed income) yields," Barclays Capital currency strategist Adarsh Sinha said. "What that suggests is that this move was stop-loss related so near-term dollar losses from here are less likely without something major to push it," he added.
By 1155 GMT, the euro was down a touch on the day at $1.2613, just off a two-week high of $1.2642 struck on Thursday. The yen was about 0.1 percent softer on the day at 118.25 per dollar, but the dollar was still nearly 2 yen off a 10-month high of 119.88 yen hit late last week.
Analysts said the dollar's failure to break through key resistance levels at 120 yen and $1.25 per euro earlier in the week had contributed to the selling momentum. "The volatility and options market is continuing to tumble - showing no appetite for a set trend at the moment," ING analyst Chris Turner said.
The yen showed little reaction to comments on Friday from Bank of Japan Governor Toshihiko Fukui, who said he expects economic growth to continue and the BOJ will adjust interest rates gradually.
Sterling hit two week highs against the dollar after stronger than expected British growth data for the third quarter that bolstered expectations for interest rates to be raised to 5 percent in November. With no further major US or eurozone data due on Friday, investors were looking to next week's Federal Reserve meeting for hints on where US interest rates might go next from the current 5.25 percent.
No change is expected at the October 24-25 meeting but investors are keen to see what the post-meeting statement has to say about inflation risks. Barclay's Sinha said however that the Fed's statement would probably not change, leaving the stage set for rates to remain on hold.