The dollar dipped from a nearly four-month high against the yen on Friday as investors booked profits from this week's rally before a gathering of Group of Eight finance ministers in Japan this weekend. The dollar had staged broad gains this week as anti-inflation talk from Federal Reserve officials and Thursday's surprisingly strong retail sales figures stoked expectations for interest rate increases this year.
Traders said the dollar's gains looked a little over stretched and it may face profit-taking as investors have probably gone too far in pricing in the possibility of three Fed rate hikes this year.
"The dollar's rally against the yen looks as if it has run its course," said Hideki Amikura, a deputy general manager of forex at Nomura Trust and Banking. Amikura said the dollar may weaken further if Friday's US data shows that a rise in consumer prices for May is smaller than expected and cools some expectations for tighter Fed policy.
But the US currency may be underpinned if US Treasury Secretary Henry Paulson and other finance ministers attending the G8 meeting issue dollar-supportive comments, coming soon after a barrage of verbal support for the battered dollar from Washington.
Paulson and the other finance ministers will discuss the global economy and soaring oil and food prices ahead of the G8 leaders' summit in July. While currencies are not expected to be a key topic, some ministers have said they will be discussed. The euro briefly dipped after French Economy Minister Christine Lagarde said on arriving in Japan that the recent strengthening of the dollar was "satisfying" and that currencies will be discussed, according to media reports.
The dollar fell 0.2 percent against the yen from late US trade on Thursday to 107.73 yen stepping back from a nearly four-month high of 108.08 yen hit the previous day. For the week, the dollar is up 3 percent against the yen, poised for its best weekly gain in four years.