Greenback ends mixed week in cautious trading

"The US is not out of the woods yet as far as inflation is concerned."

Paul Ashworth, analyst at Capital Economics

The US dollar traded mixed on Friday, getting some help from recent declines in oil prices, but trading remained hesitant ahead of a meeting of finance chiefs of the Group of Seven nations.

The euro eased to US$1.2664 at 2100 from US$1.2722 dollars late in New York on Thursday. At one point the euro fell to US$1.2628 dollars, its lowest since July 26.

The dollar stood at ?117.42, from ?117.64 late on Thursday.

Movements limited on Friday by caution ahead of a weekend meeting of the G7 countries.

Markets be on the lookout for any statement by world leaders at the meeting relating to the weakness of the Japanese yen or urging greater flexibility for the Chinese yuan.

"Unless the ministers produce an aggressive communique calling for meaningful rebalancing of Asian currency exchange rates -- a scenario that almost no market player believes will occur -- the yen will continue to flounder," said Boris Schlossberg, senior currency analyst at Forex Capital Markets.

Ian Gunner at Mellon Financial said there was concern about the Japanese economy, which could mean a softer yen.

"The Japanese government's monthly report offered mixed messages about the state of the economy," he said. "They maintained the view that the economy was recovering, but downgraded consumer spending after recent weakness. However, they said it was too early to determine whether this was temporary [due to weather] or the beginning of a trend. On prices, they dropped the word `deflation' for the first time in five years but stopped short of formally declaring an end to deflation risk."

The US dollar showed little reaction to an inflation report largely in line with forecasts.

The US Labor Dept revealed that consumer prices rose 0.2 percent last month, perfectly in line with analysts' expectations. The core rate excluding food an energy was also up 0.2 percent.

The data was consistent with predictions of cooling economic growth and inflation that may allow the US Federal Reserve to remain on the sidelines. The US central bank paused last month after 17 quarter-point rate hikes, saying any further action would depend on incoming data.

"The US is not out of the woods yet as far as inflation is concerned, despite the more moderate increases in both headline and core consumer prices in August," said Paul Ashworth at Capital Economics said.

The data all but confirmed that the Federal Reserve will leave interest rates unchanged next week, at 5.25 percent for the second time in a row.

The Fed paused from hiking rates last month, ending its run of 17 straight rate hikes going back to mid-2004.