The yen strengthened against the dollar on Friday, yet it appeared set for its largest weekly drop since June. This followed recent US economic data that alleviated recession fears and bolstered expectations of gradual interest rate cuts by the Federal Reserve.

The dollar index that gauges the dollar versus its major pairs, had dropped 0.3% to 102.75.

EUR/USD advanced 0.2% to $1.0993. Earlier this week, the euro reached its highest level since January 3, buoyed by a decline in the dollar following weak economic data.

USD/JPY was 0.8% weaker against the Japanese yen at 148.070, after reaching a two-week peak of 149.40 in the previous session.

GBP/USD ticked up by 0.4% to $1.2904, reached its highest level since July 25, following data indicating a rise in British retail sales for July. This increase was partially driven by additional spending during the men's Euro soccer championship, which offset the impact of an unusually cool and wet June that had deterred shoppers.

Currencies sensitive to risk, such as the pound, strengthened as the improved economic outlook drove a rally in stock markets.

On Thursday, data revealed that the number of Americans submitting new unemployment benefit claims fell to a one-month low last week, while U.S. retail sales surged by the largest amount in 18 months in July. This data undermined expectations that the Federal Reserve might lower interest rates by 50 basis points next month.

Traders are confident that the Federal Reserve will lower rates on September 18, but there has been debate about the magnitude of the cut. This discussion arose after unexpectedly weak U.S. payrolls data raised the likelihood of a larger 50 basis-point reduction to 71% in early August.

On August 5, the currency jumped to as high as 141.675 yen per dollar due to the Bank of Japan's unexpected rate hike and heightened U.S. recession concerns, which triggered a sharp unwinding of yen-financed carry trades.