The rally in the dollar took a bit of a breather on Friday as traders booked profits on recent chunky gains ahead of key resistance levels, but the greenback's rally was seen intact in line with a brightening US economic outlook. The dollar stood at 83.47 yen, having retreated from an 11-month peak of 84.19 hit on Thursday. Traders said some selling kicked in after the pair gained 1.2 percent this week and as it approached the 2011 high of 85.53.
"People are taking profits after huge gains this week made as the last group of hedge funds and other investors went dollar long," said Minori Uchida, a senior analyst at Bank of Tokyo Mitsubishi UFJ. Uchida added these investors were likely the last ones to join the rally, prompted to pile in by a spike in US bond yields earlier in the week. The Federal Reserve's inflation target drove the Bank of Japan into setting its own 1 percent price goal in February, minutes of the BoJ meeting showed, with a few policymakers calling for a higher target.
Traders focused on the minutes of the BoJ's meeting, when the central bank surprised by easing policy, because the move was one of several factors that led to subsequent weakness in the Japanese currency. The pullback in the dollar saw the euro bounce off a one-month low of $1.3002 to $1.3092. Initial support is seen at $1.3000, followed by the February 16 trough of $1.2973.
The softer dollar also helped commodity currencies stage a comeback, with the Australian dollar jumping to $1.0535 from a one-month low of $1.0422 plumbed on Thursday. Support is seen at the 200-day moving average at $1.0404, with recent highs just above $1.0550 likely to cap the currency for now.
Traders said the US dollar was being supported by further evidence for the view that the recovery in the world's biggest economy is becoming more self-sustaining. This has led markets to scale back expectations of more stimulus from the Federal Reserve and drive up US Treasury yields, factors underpinning the recent rise in the dollar.
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