The US dollar showed mixed performance in early deals Friday as the market is eying for the developments in Washington over the budget negotiations.
The greenback traded higher against the major currencies of Europe as lingering fiscal cliff concerns increased demand for safe-haven currencies.
President Barack Obama and Republicans are expected to have another round of discussions to break the deadlock on the budget negotiations. The U.S. House of Representives has called for an unusual session on Sunday evening to discuss the matter.
Unless an agreement is reached, approximately $600 billion in automatic tax increases and government spending cuts are due to go into effect at the end of the year.
The dollar, on the other hand, edged lower against the yen as the latter recovered on increasing safe-haven flows into it from its recent sessions' steep sell-offs.
The yen dipped across the board earlier on expectations that the newly elected Japanese Prime Minister Shinzo Abe may soon adopt the quantitative easing policies.
The dollar that jumped to a fresh 2-year high of 86.64 against the yen in the early Asian session reversed direction to reach below the 86.0 level by 5:00 am ET. If the pair extends downtrend, it may fill the post-Christmas gap-up trading below 85.26 in the near-term.
Earlier in the morning, the yen traded lower as the release of a number of weak economic data from Japan added grip that the LDP government will come up with additional easing to boost Japan's stagnant economy.
Industrial output in Japan fell a seasonally adjusted 1.7 percent on month in November, the Ministry of Economy, Trade and Industry said in Friday's preliminary reading. That was well below forecasts for a decline of 0.5 percent following the 1.6 percent increase in October.
On a yearly basis, industrial production dropped 5.8 percent - also missing forecasts for a fall of 4.6 percent after losing 4.5 percent in the previous month.
A separate report showed that core consumer prices in Japan were down 0.1 percent on an annual basis in November, matching forecasts following the flat reading in October.
Overall nationwide consumer prices were down 0.2 percent on year, also in line with forecasts following the 0.4 percent decline in the previous month. On a monthly basis, core CPI was down 0.3 percent and overall inflation dipped 0.4 percent.
Meanwhile, the unemployment rate in Japan was a seasonally adjusted 4.1 percent in November. That beat forecasts for 4.2 percent, which would have been unchanged from the previous month.
The greenback climbed against the major currencies of Europe in early deals Friday, hitting a weekly high of 1.3167 against the euro and a 10-day high of 0.9183 against the Swiss franc. The dollar also rose to a session's high of 1.6081 against the pound by 5:00 am ET.
On the upside, the US dollar may find target levels at 1.3150 against the euro, 1.6070 against the pound and 0.92 against the Swiss franc.
Looking ahead, the Chicago PMI for December and the pending home sales for November are expected to influence the market in the upcoming North American session.
