LONDON - The dollar continued to eased from a 10-month high on Friday, but was still headed for its biggest quarterly gain in a year, giving the yen some breathing room as intervention watch intensified.
The dollar index, which tracks the U.S. currency against six others, fell 0.4% to 105.75, but was on track to end the quarter up 2.8%, along with an 11th straight weekly rally - its longest in nine years.
U.S. Treasury yields, which were supporting the dollar, fell from multi-year highs overnight, a factor that, along with a 27% surge in the oil price this quarter, has helped the dollar turn positive for the year against virtually every major currency.
"We've had resilience in the U.S. economy, in the jobs market, inflation ticking higher and, obviously, the rise in oil prices. There's a lot in play here," City Index markets strategist Fiona Cincotta said.
"We're not really expecting to see any rate cuts for quite some time, well toward the back end of 2024. And also, the Fed might not want to adopt a less hawkish tone, because they don’t want to unwind that work they’ve done too early," she added.
Markets are looking ahead to the next data points, starting with key U.S. personal consumption data due later on Friday. However, a partial government shutdown is looming, which could affect the release of economic data.
A lack of data could create a "vacuum of uncertainty" as the Federal Reserve tries to determine whether another rate increase is needed this year, said Tony Sycamore, market analyst at IG.
"When we've got central banks that are data-dependent... and they can't get that data in a timely fashion, it does, I think, create another reason to move to the sidelines in some of these asset classes," Sycamore said.
Richmond Fed President Thomas Barkin joined other Fed officials speaking this week, saying on Thursday it was unclear whether more monetary policy changes will be needed in coming months.
Despite some respite on Friday, pressure remains on the yen as it trades near 150 per dollar, a level many believe is potential intervention trigger for authorities.
The yen last traded at 148.925 to the dollar, easing 0.25% on the day.
Core inflation in Japan's capital slowed in September for the third straight month mainly on falling fuel costs, data showed on Friday.
Although currency intervention may have limited impact, "the government would lose nothing politically by demonstrating to the Japanese public that it is serious about tackling the surge in import prices that results from a weaker yen," Yasunari Ueno, chief market economist at Mizuho Securities, said in a note.
Elsewhere, the euro rose for a second day, up 0.4% at $1.0608, pulling further away from this week's multi-month low of $1.0488.
Sterling rose 0.2% to $1.2236, having hit its lowest since since March 17 this week, after data on Friday showed Britain's economic performance since the start of the COVID-19 pandemic has been stronger than previously thought.
The Office for National Statistics said the UK economy in the three months to the end of June 2023 was 1.8% larger than in the final quarter of 2019, the last full quarter before the start of the pandemic.
A previous ONS estimate in August was that the economy was 0.2% smaller than before COVID.
(Additional reporting by Brigid Riley in Tokyo; Editing by Gerry Doyle, Neil Fullick and Varun H K)