The dollar fell for a third day in four against the euro and dropped against the yen as the Standard & Poor's 500 Index of stocks had its biggest decline in almost three weeks.
"The dollar is going hand in hand with the stock market," said Brian Taylor, head currency trader at Manufacturers & Traders Trust in Buffalo, New York. "With stocks down so much today it's hard to justify" buying dollars.
Against the yen, the US currency dropped to Japanese yen 119.63 at 4:45pm in New York Friday from Japanese yen 119.88 Thursday. It weakened to US$0.9729 per euro from US$0.9688.
The dollar gained against both currencies for the week on expectations economic growth will slow more in Europe and Japan than in the US. In the past five days, the dollar advanced 1.2 percent against the euro. It climbed for a fourth week in five against the yen, rising 1.7 percent.
The yen touched Japanese yen 120.28 per dollar in earlier trading, its lowest level in two weeks, after Japan's finance minister said he wanted the yen to lose value.
"I hope it will weaken a bit more," Masajuro Shiokawa told a business forum in Osaka, Japan. With its drop this week, "the currency is moving in the direction we hope to see," he said.
Japan's trade surplus shrank more than expected in July as the yen's 9 percent rise against the dollar this year reduced the value of car and computer-part exports from the world's second-largest economy. Exports -- which accounted for half of Japan's 1.4 percent economic growth in the first quarter -- dropped 0.5 percent in July.
"Officials in Japan are goading the markets to push the dollar up," said Grant Wilson, a senior currency trader at Mellon Financial Corp. The yen may weaken to as low as Japanese yen 122 in the next week, he said.
The yen was little changed at 1.1638 per euro, down from 1.1614 yesterday. It fell 0.4 percent against the euro this week.
The dollar may rise alongside US stocks in coming weeks.
The currency has moved in the same direction as US equities on nine out of 10 days in the past six months, as a rebound in stocks boosted demand for the currency.
While the S&P 500 declined 2.3 percent today, its biggest one-day drop since Aug. 5, it and the Dow Jones Industrial Average rounded a fifth week of gains. The NASDAQ Composite Index advanced for a third week.
"The move from the depths of the stock market has been quite sharp" and that helped the dollar during the week, said Mellon Financial's Wilson.
The dollar has climbed 1.7 percent against the yen and 1.6 percent against the euro in the past month, paring its year-to-date decline against the two currencies to 9.1 percent and 8.6 percent, respectively. Since July 23, the S&P 500 has rallied 18 percent, trimming its losses this year to 18 percent.
The biggest week of corporate bond sales since January also boosted demand for dollars. US corporate debt sales this week totaled US$16.11 billion, more than four times the amount offered in the year-ago week, according to Bloomberg data.
"It's been a week of cooler heads in the markets, even though stocks are off today," said Lisa Finstrom, a currency analyst at Salomon Smith Barney Inc. "The dollar is holding up."
The currency has traded in the same direction as US stocks on nine of 10 days in the past six months, according to Bloomberg data.
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