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.
After hitting an 8-month high of 113.90 yen earlier, the dollar was down 0.1 percent against the yen at 113.10 yen, still on track for a more than 2 percent gain on the week.
The euro rose 0.3 percent to $1.0594 after dropping to $1.0518 on Thursday, its lowest since March 2015.
"The euro's indulging in a bit of short-covering, and I suppose it can benefit from quiet, thin markets," said Societe Generale strategist Kit Juckes.
"At the very least, dollar-yen is a buy on dips in this environment. Our target is 120 next year, but our 114 forecast for March could be reached a week after we revised it. If this move continues at the recent pace, the whole 2017 dollar rally might have been done by the time 2017 even begins."
Emerging market equities and currencies have been hit hard by the specter of higher U.S. rates and possible U.S. trade protectionism under President-elect Donald Trump.
The Turkish lira, for example, slumped to a record low even after the country's central bank raised interest rates for the first time in nearly three years on Thursday.