The dollar had its first weekly decline in four against the yen as evidence mounted that the US economic recovery is sputtering.
Demand for dollars slowed after government reports showed housing construction fell in July and Philadelphia-area manufacturing contracted this month for the first time this year.
"Economic data has been weak," said Anthony Borthwick, senior currency manager at PanAgora Asset Management in Boston, with assets of US$15 billion.
Since the end of the first quarter, the firm has held fewer dollars than recommended by its benchmarks, he said.
The US currency fell 2 percent this week to Japanese yen 117.76 at 4:03pm in New York, Friday.
The dollar rose from Japanese yen 117.39 late Thursday amid speculation Japan's government will sell yen to slow the Japanese currency's rally. It also weakened for the second week in three against the euro, sliding 1.5 percent from last Friday to US$0.9843 per euro.
A University of Michigan consumer confidence index today also pointed to a slowing recovery. The index slipped to 87.9 this month from 88.1 in July, adding to concern that consumer spending, which accounts for two-thirds of demand in the US economy, may weaken.
A fourth weekly gain in the Standard & Poor's 500 Index limited the dollar's losses, traders said. The index is down 19 percent this year, helping drive the dollar down 10 percent against the euro and 11 percent against the yen in that period.
Borthwick said he's considering raising the firm's dollar holdings. He said he's waiting for evidence the economy is gaining strength and the rout in stocks is over. The US economy slowed to a 1.1 percent annual rate of growth in the second quarter from 5 percent in the first.
"It really depends on equities," Borthwick said. With a recovery in stocks, "the dollar will do fine."
The dollar fell to US$1.5388 per British pound from US$1.5358 Thursday and was little changed at SF1.49.
The yen's one-week rally against the dollar may stall after comments from a Japanese government official fueled speculation the Bank of Japan will sell its currency to weaken it.
"The recent trend for a stronger yen is unfavorable as it doesn't match the economic fundamentals," Haruhiko Kuroda, Japan's vice finance minister for international affairs, said, according to the Reuters news agency.
On Wednesday, the yen reached as strong as Japanese yen 116.33 per dollar, less than Japanese yen 1 from a 17-month high of Y115.54 it reached last month. Against the euro, the yen slipped to Japanese yen 115.93 Friday from Japanese yen 115.26.
"We're getting some incremental concern about [yen sales] creeping in so that's helping to support the dollar against the yen," said Rebecca Patterson, a currency strategist at JP Morgan Chase & Co, the fifth-largest currency trader, according to Euromoney magazine.
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