Dollar index on track for best run in 17 years

The dollar was steady on Friday at six-year highs against the yen, and the dollar index was headed for a ninth consecutive week of gains after strong retail sales data added to expectations that U.S. growth is gaining steam.

U.S. retail sales rose broadly in August, which should ease some concerns about consumer spending and support expectations for sturdy growth in the third quarter.

A recent string of improving economic data has raised expectations that the Federal Reserve may act sooner to raise interest rates, a move most investors expect will begin next year.

"The general message on the economy is that it's improving, but we still have a lot of slack to take up," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

U.S. consumer sentiment also rose in September to its highest in more than a year on more upbeat views on the domestic economy in the coming year, a survey released on Friday showed.

A drop in import prices, however, capped some of the dollar's gains. Import prices declined 0.9 percent in August, the largest drop since November 2013.

"The import prices were shockingly low," said Boris Schlossberg, managing director at BK Asset Management in New York. "It shows that there are no inflationary pressures in the economy and makes the market pause over whether the Fed is going to accelerate its rate hiking schedule."

Some investors have also been taking profits on concerns that the market may have moved too far before next week's highly anticipated meeting of the Federal Open Market Committee, the Fed's policy-making body.

The dollar index, which measures the greenback against a basket of major currencies, was last down 0.02 percent at 84.279 and was on track for the longest winning streak since 1997.

U.S. Treasury yields have also been adjusting to the prospect of higher rates in more volatile trading. The two-year yield was not far from a three-year peak of 0.5900 per

"The main macro trigger is rising U.S. yields," said Alvin Tan, a currency strategist at Societe Generale in London.

The dollar touched a high of 107.39 yen, its strongest since September 2008, and last traded at 107.28, up 0.17 percent on the day.

U.S. dollar strength has also been due to a worsening picture in Europe and Japan. The European Central Bank last week cut rates to new lows and launched an asset purchase program to ward off deflation.

The Bank of Japan was also expected to launch new stimulus to address low inflation and a flagging economy.

(Additional reporting by Jemima Kelly and Richard Leong; Editing by Jeffrey Benkoe andJonathan Oatis)