The U.S. dollar fell for the first time in five days against the on Thursday as investors locked in recent gains and amid concerns after U.S. President Donald Trump unexpectedly dismissed the Federal Bureau of Investigation chief James Comey.
"This could be position-squaring in dollar/yen," said Mark McCormick, North American head of FX strategy at TD securities in Toronto.
"The pair has reached levels such as breaking 113.50 yen. Now we do need impetus from new drivers because the day-to-day stuff we track shows dollar/yen has been overbought," he added.
Still, the outlook for the greenback is bright, especially after upbeat U.S. data on Thursday solidified expectations of an interest-rate hike by the Federal Reserve next month.
Data showed U.S. initial jobless claims unexpectedly fell last week, while producer prices rebounded strongly in April.
Following the report, interest rate futures priced in a more than 80 percent probability that the Fed will tighten policy again next month.
"Along with the fact that the dollar is trading cheaply to rate differentials, the fact that U.S. rates are starting to rise and price in more certainty around a June hike has favored a better outlook for the U.S. dollar," McCormick said.
The firing of Comey still weighs on the currency market. Days before his sacking, the former FBI director told lawmakers he had sought more resources for his agency's probe into possible collusion between the presidential campaign of Donald Trump and Russia to sway the 2016 U.S. election.
Sterling, meanwhile, hit a one-week low against the dollar after the Bank of England's inflation report showed interest rates are unlikely to rise within the next two years.
The BoE's Monetary Policy Committee also voted 7-1 in favor of keeping interest rates on hold this month.
In late morning trading, the dollar fell 0.46 percent against the safe-haven yen to 113.73 yen. Against another safe-haven currency, the Swiss franc, the dollar fell 0.31 percent to 1.0056 franc.
The dollar index was down 0.09 percent at 99.58 against a basket of major currencies.
Sterling, meanwhile, slid 0.42 percent to $1.2882.
The New Zealand dollar sank to an almost one-year low after the Reserve Bank of New Zealand stuck to a neutral bias on policy, warning investors they were reading the outlook wrong and expressing approval of the currency's declines this year.
The kiwi was last down 1.33 percent against the greenback at US$0.6848.