NEW YORK (Reuters) - The dollar rose on Friday after a four-day losing streak, while the safe-haven yen gained as investors grew cautious over what was expected to be a contentious G7 meeting in Canada on Friday.
Despite Friday's gains, the dollar posted its largest weekly drop since late March.
Next week's expected hike in U.S. interest rates by the Federal Reserve, a European Central Bank policy meeting and a Brexit bill vote all pose risks for currency traders and could inject more volatility in the market.
"America's isolation on trade policy, which will be on full show at this weekend's G7 summit in Canada, raises the admittedly still small risks of a worst-case scenario in which the U.S. tears up NAFTA (North American Free Trade Agreement) or launches an all-out trade war with China," said Michael Pearce, senior U.S. chief economist, at Capital Economics.
Top U.S. allies scrambled on Friday to keep a Group of Seven nations summit from veering off track as President Donald Trump vowed to deal with "unfair trade practices" by Canada and the European Union.
In late trading, the dollar rose 0.2 percent against a basket of currencies <.DXY> to 93.56. But it fell 0.7 percent for the week, its steepest weekly fall in 10 weeks.
Trade disputes between the United States and its major partners will be in the spotlight, with specific focus on the Mexican peso <MXN=> and the Canadian dollar <CAD=D3>.
High-yielding currencies were a sea of red, meanwhile, with the yen higher on the day. The dollar was last down 0.2 percent versus the yen at 109.45 <JPY=>
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ECB BETS
The dollar has come under pressure this week as the euro bounced back from 10-month lows amid easing Italian political concerns, and speculation the ECB could signal intentions to start unwinding its massive bond purchasing program when it holds its policy meeting on June 14.
The euro fell 0.3 percent to $1.1766 <EUR=> after rising to a three-week high of $1.1840 overnight as investors took profits into this week's bounce. It was up 0.9 percent on the week, its biggest weekly gain since mid-February.
While expectations have grown the ECB will signal its intention to wind down its quantitative easing program, ING believes the Italian political situation and the potential of a breakout in trade tensions will keep the central bank from taking action.
The Federal Reserve, meanwhile, is widely expected to raise rates next week. Investors will most likely focus more on clues about interest rate rises for the rest of the year.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Saikat Chatterjee in London; Editing by Chizu Nomiyama)
