The dollar fell against major rivals on Friday as investors took advantage of a pullback in U.S. bond yields and a holiday-shortened week to consolidate gains that have propelled the currency to a nearly 14-year peak.
Expectations of rises in U.S. inflation and interest rates have driven the greenback to a more than 6 percent gain in the past two months, its strongest showing over a similar period since early 2015.
Most currency players expect the gains to continue. But the combination of the U.S. Thanksgiving holiday, the processing of corporate flows before the month-end and perceived risks looming for markets in the first half of December led some to cash in gains now.
"With investors largely pricing in a higher risk of U.S. inflation over the coming years and likely a faster pace of Fed monetary policy normalization, the dollar's outlook remains bright," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
U.S. 10-year Treasury yields pulled back from Thursday's 16-month high to trade at 2.36 percent, while two-year yields slipped from a more than six-year high hit earlier in the session. U.S. two-year yields are currently at 1.142 percent.
In mid-morning trading, the dollar index fell 0.2 percent to 101.49 after hitting an almost 14-month peak the previous session. The index was on track for its largest one-day fall since Nov 1.