(Updates with comment, UK GDP; refreshes prices at 0700 GMT)
The dollar headed for a fourth weekly gain on Friday after data showed U.S. inflation did not pick up as strongly as expected in July, which helped reinforce the existing view among investors that the Federal Reserve is unlikely to raise rates much more.
The stronger dollar put the Japanese yen on course to test a key support level, though liquidity was thin with Japan on holiday on Friday.
The yen JPY=EBS was flat at 144.72 per dollar in early Asian hours, having earlier traded at 144.89, its weakest since June 30, when it briefly breached 145, a level at which investors think the Bank of Japan might intervene.
"You should expect the rhetoric once yen gets to 145," said Bank of Singapore currency strategist Moh Siong Sim. "I think the market will get a lot more careful as we get to that level."
Japan intervened in currency markets last September when the dollar rose past 145 yen, which prompted the Ministry of Finance to buy the yen and push the pair back to around 140 yen. The yen is down over 9% against the dollar for the year.
The yen was also lower against the euro EURJPY=EBS at 158.98 per euro, which hit a 15-year peak of 159.19 on Thursday.
Meanwhile, sterling GBP=D3 rose for the first time in four days after data showed the British economy grew more than expected in June, allaying some concern about the impact of high inflation and high rates on activity.
The pound was last up 0.3% at $1.2711, but was still heading for a fourth weekly drop.
Data on Thursday showed U.S. consumer inflation rose 0.2% last month, matching the gain in June, and by 3.2% in the 12 months through July.
Economists polled by Reuters had forecast a monthly rise of 0.2% last month and a year-on-year gain of 3.3%.
Futures traders place a near-90% chance of the Fed leaving its benchmark interest rate in its current range of 5.25-5.5% when it meets in September. Prior to the inflation data, that chance was already above 85%. FEDWATCH
"(The) CPI report appears to put another nail in the coffin for the prospects of further Fed rate hikes this year," said Nick Rees, FX market analyst at Monex Europe.
Moderating inflation, together with an easing labour market, has bolstered economists' conviction that the U.S. central bank will be able to engineer a "soft landing" for the economy.
Fed officials have expressed more caution. San Francisco Fed President Mary Daly said on Thursday it was premature to suggest the central bank had finished raising rates.
The dollar index =USD , which measures the U.S. currency against six others, fell 0.1% to 102.50, but was still set for a fourth weekly gain, thanks in part to a rise in Treasury yields.
0#USBMK= The dollar fell against the euro EUR=EBS , which rose 0.1% to $1.0995 and against the Australian dollar AUD=D3 , which rose 0.14% to $0652.
The Aussie dollar still headed for a fourth straight weekly loss even though the head of the central bank said domestic rates may have to rise further, even if inflation is coming down as expected.
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