The yen strengthened on Friday and the dollar slid as weaker Asian and European stocks reminded investors that problems in US housing and credit markets may sting the global economy.
Trading was quiet, with few investors willing to take on fresh positions a week after worries about US subprime mortgage lending caused a sharp contraction in credit market liquidity and triggered a frantic sell-off in global markets.
Higher-yielding currencies have since recovered somewhat, but investors remain wary that subprime-related problems will continue, keeping demand low for riskier assets.
?It continues to be all about risk aversion, and whether it?s on or off is the only story driving all (currency) pairs,? said Geoff Kendrick, currency strategist at Westpac.
At 1030 GMT, the euro was up 0.2% versus the dollar at $1.3591, after earlier rising above $1.36 to its highest level for 10 days.
The dollar dropped half a percent against the yen to 115.81 yen, but was off the day?s lows of 115.54. The greenback rebounded as much as 5% this week from a 14-month low.
The euro also fell a third of a percent against the yen to 157.36 yen, after recovering around 6.5% this week from 2007 lows.
Market volatility has calmed since last week, but currency moves remained at the mercy of equities.
The Nikkei average fell 0.4% on Friday, while European stocks were also trading lower and US stock index futures indicated a weaker opening on Wall Street. But markets have stabilised from a week ago, helped by Bank of America?s move on Wednesday to invest $2 billion in troubled US mortgage lender Countrywide Financial, which soothed credit jitters and offered some stability to global stocks.
China?s yuan rose the most in more than six weeks as a central bank official said capital inflows pose a risk to the economy, spurring speculation the government will allow faster currency gains to cool growth.
The yuan completed its best week since July 13 after People?s Bank of China assistant governor Yi Gang said the nation needs to resolve excess liquidity ?effectively.?