The dollar hit a two-week high versus the yen on Friday after data showed the US unemployment rate fell to a near four-year low in September, prompting investors to sell the safe-haven currency for riskier assets. Investors have used the yen as a cheap way to borrow cash and convert it into higher-yielding currencies such as the Australian dollar and the Norwegian and Swedish kronas.
---- Bank of Japan keeps monetary policy steady
The US dollar hit its high of 78.87 yen before pulling back to 78.65, a gain of 0.24 percent on the day Improvement in the US jobs data helped lift risk sentiment that the world's No 1 economy is scratching its way back toward solid growth. There were 114,000 new non-farm jobs created in September and solid upward revisions for the prior two months while the unemployment rate fell more than expected to 7.8 percent, its lowest level since President Barack Obama took office.
The euro also hit a fresh two-week high of $1.3071 following the US data. However it has since slipped back to unchanged on the day at $1.3017. "I think there is likely some position squaring heading into the weekend on the euro. We are just underneath a long-term trend area line here at $1.31, representing pretty strong resistance from the highs of 2011," said Eric Viloria, senior currency strategist, Forex.com. Viloria noted investors may just be looking at the solid gains the euro has made this week and taken some profits. The euro is up about 1.33 percent for the week. The lingering unknowns in Europe, such as Spain's funding crunch may also have prompted investors to capture some of their profits before the weekend.
Against the yen, the euro advanced to a two-week peak of 102.80, but edged back to 102.46 yen, a rise of 0.30 percent. Some analysts said the US jobs data was not strong enough for the Federal Reserve to consider ending monetary easing. Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York, for instance, described the US employment report as "decidedly mixed." He cited the household survey, which showed 873,000 new jobs created - "the most in a couple of decades" - but two-thirds of those positions were part-time jobs.
He also pointed to data in the report showing factories lost 16,000 jobs in September. Over the past three months, factories have lost about 21,000 net jobs. "The favourable trend for manufacturing employment has clearly levelled off," Chandler said. The employment report temporarily took investors' minds away from the euro zone's debt crisis. Market participants are still awaiting Spain's request for aid, a move that would prompt the European Central Bank to buy its bonds and lower the country's borrowing costs. That would be viewed as positive for the euro.
ECB President Mario Draghi said on Thursday that everything was in place for the central bank to buy the bonds of struggling euro-zone countries like Spain and conditions linked to it need not be punitive. Spanish 10-year debt yields have declined - a positive sign - and the euro has rallied since the ECB announced its plan to buy bonds of debt-stricken countries, in anticipation of Spain eventually seeking financial assistance. But that positive momentum may not last.
"The longer Spain prevaricates on the aid front, the more likely it is that the market will price out this bailout premium," said Richard McGuire, senior fixed-income strategist at Rabobank in London. Investors are also wary of buying the yen on concerns that the Japanese authorities could intervene to weaken it. Japanese officials have expressed concerns about the strength of the yen in recent weeks.
The yen earlier nudged higher after the Bank of Japan kept monetary policy unchanged and held off from additional easing measures. The reaction was limited, however, as Friday's decision was in line with expectations. Traders said the dollar would probably find support from buyers at 78.00 yen, while resistance came in at the 100-day moving average around 78.83 yen.