The dollar rose against the euro on Friday, recovering from an early swoon after better-than-expected U.S. durable goods data for April eased investor concerns about the U.S. economy.
Orders for durable goods, which range from toasters to aircraft, increased 3.3 percent last month, the Commerce Department said on Friday, beating the consensus forecast for a rise of 1.5 percent. The department also revised prior readings for orders to show a smaller decline in March than previously estimated.
(Read More: Despite Overseas Weakness, US Durable Goods Rise)
The yen overall extended gains from the previous session, as weak equity markets helped the safe-haven currency recover after recent declines.
"The dollar got a partial boost but is still heavy on the yen on concern about volatility in Japanese financial markets," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The euro was last at $1.2932, down slightly on the day, and closer to the session low of $1.2903 than the session peak of $1.2995.
The dollar was last 0.9 percent lower against the yen at 101.06, up from hitting a new two-week low of 100.68 yen.
The euro gained 0.7 percent this week against the dollar, its first weekly gain in three periods. The dollar fell 2.19 percent against the yen for the week, the worst weekly decline since July 29, 2011, at current prices.
In early trade, the euro climbed after the monthly German Ifo survey showed business morale improved far more than expected in May, suggesting Europe's largest economy is picking up and making further euro zone monetary easing less likely.
"After the Ifo data there is a bit of optimism that we might see some positive surprises in euro zone data going forward, and that is giving the euro some support," said Arne Lohmann Rasmussen, head of FX research at Danske Bank. He expected the euro to hold up well and forecast it at $1.30 in three months.
The Ifo data came as a relief to market participants after recent comments from European Central Bank officials fueled expectations the central bank could lower interest rates further, even potentially cutting the deposit rate to negative.
ECB easing prospects have contrasted with speculation the Federal Reserve may scale back its asset purchasing program if the U.S. economy improves further. On Wednesday, Chairman Ben Bernanke said the Fed might trim stimulus at one of the next few policy meetings if the economy maintained its momentum.
The dollar fell 0.9 percent against the Swiss franc, another safe haven which has recently tracked the yen lower. Against a basket of currencies the dollar fell to its lowest in more than one week. It last traded down 0.2 percent at 83.60.
Although most analysts and traders expect a resumption in the trend of yen weakness, exacerbated by aggressive Bank of Japan monetary easing in early April, some say the yen could firm in the coming weeks.
The dollar has gained around 16.5 percent against the yen this year and the euro is up around 14 percent against the yen, allowing room for a correction. However, traders expect the dollar to find support at the 100 yen level, citing strong Japanese importer bids.
"The yen weakening trend will remain. But there will be a correction in the short term and it could be a sizeable one," said Ian Stannard, Morgan Stanley head of European FX strategy.
Analysts at Societe Generale advised selling the euro against the yen at 131.60 yen with a target of 128 yen and a stop at 132.50 because the prospect of the Fed reducing asset purchases has weighed on riskier assets.
The euro was last down 1.3 percent at 130.62 yen, having hit a two-week low of 129.94 yen on Thursday. The single currency fell to a one-week low against the Swiss franc, last trading down 0.8 percent at 1.2425.