Dollar trims losses vs yen after U.S. May new home sales data

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The dollar scaled back its earlier decline against the yen on Friday as data showed sales of U.S. new homes in May came in stronger than expected in May, reducing worries about a slowdown in the domestic housing market.

Traders were looking to U.S. inflation data due next week to provide clues on the U.S. Federal Reserve's likely interest rate policy.

The dollar index - which measures the greenback against a basket of six major currencies, the euro the heaviest weighted among them - inched down by 0.33 percent to 97.27 as the euro hit $1.1195, its highest since Monday.

The European Central Bank is deciding when and how quickly to wind back its expansive quantitative easing (QE) program.

"With the debate over ECB QE policy heating up, expect the euro to be much more sensitive to data surprises," wrote ING currency strategist Viraj Patel in a research note.

UBS currency strategist Daniel Trum, however, in Zurich, said currency markets were not showing great sensitivity to data at the the moment unless they were particularly weak or strong. He said the euro had been lifted this week by consumer confidence hitting a 16-year high in June.

The dollar peaked at a one-month high on Tuesday after the Federal Reserve hiked interest rates last week and left the door open for further monetary tightening later in the year. But it has been stuck in a tight range since, awaiting fresh catalysts.

"For the dollar we're in a waiting game until September," said Trum. "In our view they'll then hike interest rates but then start to talk about the inflation rate - if that doesn't start to go up then future hikes will become more difficult."

U.S. data due next week include the June consumer confidence indicator, pending home sales, crude oil inventories, revised first quarter GDP and the PCE price index.

"While most U.S. indicators bear watching, what really matters for the dollar are wages and inflation-related data, culminating with the non-farm payrolls in two week's time," said Makoto Noji, a senior strategist at SMBC Nikko Securities.

Commodity-linked currencies held to significant gains made on Thursday following a rebound in crude oil prices from 10-month lows. The Canadian dollar was flat at C$1.3223 per U.S. dollar after rallying 0.75 percent on Thursday.

Exactly a year after Britain voted to leave the European Union, sterling was almost half a percent stronger on the day at $1.273, with some investors betting the Bank of England could raise interest rates as soon as August.

In the year since the vote, the pound has fallen more than 15 percent against the dollar and almost 13 percent versus the euro.