The dollar fell against major rivals on Friday as investors took advantage of a pullback in US bond yields and a holiday-shortened week to consolidate gains that have propelled the currency to a nearly 14-year peak. Expectations of rises in US inflation and interest rates have driven the greenback to a more than 6 percent gain in the past two months, its strongest showing over a similar period since early 2015.
Most currency players expect the gains to continue. But the combination of the US Thanksgiving holiday, the processing of corporate flows before the month-end and perceived risks looming for markets in the first half of December led some to cash in gains now. "With investors largely pricing in a higher risk of US inflation over the coming years and likely a faster pace of Fed monetary policy normalization, the dollar's outlook remains bright," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
US 10-year Treasury yields pulled back from Thursday's 16-month high to trade at 2.36 percent, while two-year yields slipped from a more than six-year high hit earlier in the session. US two-year yields are currently at 1.142 percent. In mid-morning trading, the dollar index fell 0.3 percent to 101.40 after hitting an almost 14-month peak the previous session. The index was on track for its largest one-day fall since November 1.
After hitting an 8-month high of 113.90 yen earlier, the dollar was down 0.3 percent against the yen at 112.98 yen, still on track for a more than 2 percent gain on the week. The euro rose 0.5 percent to $1.0605 after dropping to $1.0518 on Thursday, its lowest since March 2015.
"The euro's indulging in a bit of short-covering, and I suppose it can benefit from quiet, thin markets," said Societe Generale strategist Kit Juckes. The Turkish lira, for example, slumped to a record low even after the country's central bank raised interest rates for the first time in nearly three years on Thursday.