The dollar sank against emerging market currencies and the yen in Asia Friday after seeing sharp losses on Wall Street while stocks picked up in later trade to extend the previous day's rally.
The upbeat performance was a far cry from the start of the week, which was overshadowed by the deadly Paris attacks last Friday, which raised fears about security in Europe and its effect on the economy.
Minutes Wednesday showing Federal Reserve policymakers are confident the US economy is strong enough to withstand a December interest rate hike fuelled buying across global markets and sent the dollar up against its major rivals.
However, while equities held their gains, the dollar's strength dissipated through the day as investors acknowledged the fact that any increase in borrowing costs will be slow.
"Traders are pulling back from their long dollar trades for now, given speculation that the Fed's tightening cycle may be more gradual than the market had previously priced," Imre Speizer, markets strategist at Westpac Banking in Auckland, told Bloomberg News.
The greenback fell to 122.87 yen in New York Thursday from 123.59 yen the day before. The Bank of Japan's refusal to ramp up its stimulus — despite the country being in recession — also provided support to the yen.
The euro jumped to $1.0735 in New York, from $1.0660 on Wednesday.
Recovering confidence
The US unit continued to face headwinds from emerging market currencies, with the upbeat Fed outlook providing dealers with confidence to buy risker, higher-yielding assets.
The South Korean won rose 0.7 percent, Indonesia's rupiah added 1.3 percent and the Malaysian ringgit put on 1.7 percent. The Australian dollar and Thai baht also pushed higher.
Emerging units have taken a beating against the dollar for most of the year on long-running expectations the Fed would lift rates before the end of 2015 — causing investors to move their money to the United States looking for better, safer returns.
In share trading Tokyo reversed earlier losses to end on a high, while Sydney and Shanghai also closed the week on a positive note.
Chinese investors finished in the black despite a recent spate of data reinforcing concerns about a growth slowdown in the world's number two economy.
The Shanghai market has had a tumultuous week, with the imminent restart of initial public offerings causing fears about liquidity while also bolstering confidence that stability is finally returning.
"The market is holding rather well, with volatility remaining at reasonable levels, considering all the recent developments such as soft economic figures," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group in Shanghai.
"This would seem to indicate investors are gradually recovering confidence in the long-term performance of the equity market."
Key figures around 0710 GMT
Tokyo – Nikkei 225: UP 0.1 percent at 19,879.81 (close)
Shanghai – composite: UP 0.4 percent at 3,630.50 (close)
Sydney: UP 0.3 percent at 5,256.10 (close)
Hong Kong: UP 0.2 percent at 22,536.95
Euro/dollar: DOWN to $1.0718 from $1.0735 in New York
Dollar/yen: DOWN to 122.83 yen from 122.87 yen
Euro/yen: DOWN to 131.70 yen from 131.90
New York – Dow: DOWN 0.02 percent at 17,732.75 (close)
New York – S&P 500: DOWN 0.11 percent at 2,081.24 (close)
New York – Nasdaq: DOWN 0.03 percent at 5,073.64 (close)
