Instability in nuclear-armed Pakistan after Thursday's assassination of opposition leader Benazir Bhutto also kept markets on edge, sparking flows into safe-haven assets such as gold, Treasuries and the Swiss franc and giving investors a chance to take profits on the dollar's December gains.
European equities also dipped, prompting some investors to reduce carry trades by buying back yen borrowed at low cost to fund purchases of higher-yield currencies.
Economists expect a report due at 10 a.m. to show sales of new U.S. homes fell in November, which may increase dollar pressure and bolster the case for Federal Reserve interest rate cuts next year.
Lower U.S. rates would cut the dollar's yield advantage, especially with the European Central Bank showing no signs of matching the Fed with rate cuts of its own.
Early in New York, the dollar was down 0.3 percent against a basket of major currencies at 76.398 .DXY. It was down 1.7 percent on the week, on track for its worst weekly performance since late November 2006.