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Soft data puts dollar on defensive, euro given breather for now

The dollar was on the defensive on Friday after soft U.S. economic data halted its advance against peers such as the yen and euro while the market awaited further developments in Greek debt negotiations.

The dollar index was at 94.195 after going to a one-week low of 93.979 overnight. The index had reached a two-week peak of 95.115 on Wednesday.

The dollar slipped 0.2 percent to 118.94 yen, knocked down from a five-week high of 120.48 touched on Wednesday after last week's robust U.S. non-farm payrolls revived prospects for a mid-year rate hike by the Federal Reserve.

Economic optimism was slightly cooled, however, by Thursday's weaker-than-expected U.S. retail sales and jobless claims. U.S. debt yields slid in the wake of the data, taking support away from the greenback.

"The slide showed that dollar/yen had become top-heavy and the market was simply unable to sustain earlier gains. The dollar still looks well supported, after all U.S. fundamentals, as nonfarm payrolls proved, remain relatively strong," said Koji Fukaya, president of FPG Securities in Tokyo.

"The global environment, on the other hand, does not fully support a 'risk on' mood and this impedes one-way gains by the dollar."

Frank van den Bergh | E+ | Getty Images

The dollar going on the defensive gave the battered euro some reprieve.

The common currency was steady at $1.1397 having gained 0.6 percent overnight and putting some distance between a recent trough of $1.1270 brushed at the start of the week.

Germany, France, Russia and Ukraine agreeing late on Thursday to a ceasefire between Ukrainian forces and Russian-backed separatists also shored up the euro.

Another small break for the euro came when the European Central Bank further raised the cap on emergency funding for Greek banks by about 5 billion euros to 65 billion euros.

Still, the euro is expected to remain shaky and volatile as negotiations for a bailout deal between Greece and its creditors continue with no clear end in sight.

Unable to reach an understanding this week, Greece and euro zone finance ministers will attempt again to bridge their differences at a meeting on Monday.

"The media may precede the meeting with headlines and news. Also, with the March debt repayment deadline looming it is hard to imagine Greece staying still. It may float trial balloons to test responses by the 'troika," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

"So something could take place over the weekend. It might be difficult to short the euro after its bounce, but riding the rise any further requires second thought as well."

Sterling remained bullish after the Bank of England on Thursday said inflation would return to its 2 percent target, keeping alive chances it will hike rates early in 2016.

The pound traded within reach of a six-week peak of $1.5415 hit overnight.

It fetched 74.14 pence per euro after going to a seven-year high of 73.71 overnight.