LONDON (AFP) - The dollar steadied after the previous day's sharp falls as dealers looked for direction from manufacturing data and a weekend Group of Seven meeting of finance ministers and central bankers.
The single European currency fell slightly Friday to 1.2421 dollars from 1.2435 overnight in New York.
The dollar rose to 110.39 yen from 110.02 on Thursday.
The Japanese currency found only modest support from a better-than-expected quarterly survey of business confidence from the Bank of Japan.
The survey showed business confidence among large manufacturers rising to a 13-year high as base material producers benefited from surging crude oil and commodity prices, economists said.
However, they noted the survey also showed a slowdown in the pace of improvement in business sentiment, with the headline diffusion index for large manufacturers showing only a four-point improvement on June's level.
"Whilst the headline number was stronger than expected, the breakdown of the report is slightly more mixed," noted analysts at Dresdner Kleinwort Wasserstein.
"The yen is higher on the day, but has subsequently eased from its highs," they added.
The G7 meeting in Washington, which was due to begin Friday and continue over the weekend, remained the principal focus of attention.
Delegates were expected to discuss the effect of high oil prices on the global economy.
There was also speculation in the market about whether China might reassess its policy of pegging the yuan to the dollar.
"Talk of the peg has been rife this week with the IMF urging China to use this period of strong economic growth as an opportunity to reassess the flexibility of its currency," said Steve Pearson, currency analyst at HBOS.
Analysts said any such talk was likely to be be positive for the yen and other Asian currencies and negative for the dollar, though many were sceptical that China would make such a decision just yet.
"We maintain our downside bias for the dollar/yen rate over the near-term based on our view that the outcome of the G7 meeting over the weekend will be positive for yen sentiment," Dresdner Kleinwort Wasserstein analysts said.
The market was also looking ahead to US Institute for Supply Management's survey of manufacturing activity across the country due to be published later Friday.
Following improvements in other recent surveys, the ISM reading was expected to be on the strong side, supporting the dollar, dealers said.
The euro was changing hands at 1.2421 dollars against 1.2435 late on Thursday in New York, 137.07 yen (136.79), 0.6884 pounds (0.6861) and 1.5480 Swiss francs (1.5492).
The dollar stood at 110.39 yen (110.02) and 1.2467 Swiss francs (1.2455).
The pound was at 1.8041 dollars (1.8117), 199.16 yen (199.27) and 2.2493 Swiss francs (2.2565).
On the London Bullion Market, the price of an ounce of gold stood at 418.55 dollars against 415.65 late on Thursday.