* Trump said on Thursday strong dollar puts U.S. at a disadvantage
* Dollar down vs major currencies, cuts gain vs yuan
By Daniel Leussink
TOKYO, July 20 (Reuters) - The dollar was on the defensive against the yen and euro early Friday after U.S. President Donald Trump expressed concern about the currency's strength and the Federal Reserve's interest rate increases.
Trump said in an interview with CNBC on Thursday that a strong dollar puts the United States at a disadvantage, adding that the Chinese yuan "was dropping like a rock." strong currency tends to make a country's exports more expensive.
Trump also showed displeasure about the Fed's monetary tightening, saying that he was worried about its potential impact on the U.S. economy and American competitiveness. White House later said in a statement that the president respects the U.S. central bank's independence and was not interfering with its policy decisions.
"The market was caught a bit off guard. The discussions and debates around trade policy have not necessarily involved foreign exchange so far," said Shinichiro Kadota, senior FX and rates strategist at Barclays (LON:BARC).
"Now it looks like Trump is criticizing yuan and euro weakness and the dollar's strength. I guess that has taken people a bit by surprise," he said.
Against the Japanese yen JPY= , the dollar recouped some of its losses after dropping as low as 112.05 yen from a six-month high of 113.18 yen on Thursday. It was down 0.1 percent on the day at 112.38 yen early on Friday.
The euro was 0.1 percent stronger at $1.16545 EUR= in the aftermath of Trump's remarks after dipping to a nearly three-week low of $1.5750 on Thursday.
The dollar index versus a basket of six major currencies .DXY was slightly lower on Friday at 95.123, just above the psychologically-significant threshold of 95.
It had dropped from a one-year high of 95.652 to 94.333 following Trump's remarks before winning back some of its losses.
In offshore trade the Chinese yuan CNH=D3 gained 0.1 percent on Friday to 6.7833 per dollar, but was not far off a one-year low of 6.8079 per dollar hit the previous day.
Thursday's comments were was not the first time that Trump voiced his displeasure with a strong dollar. He told the Wall Street Journal on three separate occasions last year that the dollar was "too strong".
"If you look at yesterday's moves, the yen was the outperformer and the euro was quite strong as well," said Kadota.
"I think the dollar-yen could still continue to be affected the most," he said. On Thursday Trump "did not necessarily speak about the yen, but what it does is that it raises some concerns about trade policy, so it could also weigh on the risk sentiment like it did yesterday".