The dollar fell broadly on Friday, pushed down by a report that showed the US current account gap widened more than expected in the first quarter.
By early afternoon, the dollar deepened its descent in thin pre-weekend trade that was partly technically driven, traders said.
The US current account deficit widened to a record $144.9 billion in the first quarter, exceeding economists' forecasts of a $141.0 billion gap. The deficit is a reflection of the gap between money being switched out of dollars into other currencies to buy foreign goods and services and the money flowing into dollars as other countries buy US exports.
The wide current account deficit, the broadest measure of the nation's global trade, has been a persistent drag on the dollar over the past two years.
"Today's numbers raised concerns over the financing of the current account deficit," and weighed on the dollar, said Paresh Upadhyaya, portfolio manager with Putnam Investments in Boston.
"The markets have priced in a pretty aggressive tightening cycle by the Fed. Until we see stronger inflation numbers or stronger macro (economic) data, the markets will likely revert back to some of the negative structural fundamentals for the dollar, such as the twin deficits," Upadhyaya said, referring to the US current account and budget deficits.
The euro traded at $1.2134 according to Reuters data, up around 0.72 percent on the day, but earlier it hit six-week lows against the yen of 131.09 yen before retracing some of those losses.
Against the yen, the dollar fell about 0.9 percent to 108.62 yen.
Against the Swiss franc, the dollar shed about 0.75 percent to trade around 1.2427 francs. Sterling gained 0.22 percent to $1.8382.
Traders also cited technical moves for the dollar's decline against the euro.
"There has been some model fund buying of euros that has driven" (the euro higher), said Grant Wilson, senior foreign exchange trader with Mellon Bank, Pittsburgh. "We took out some light stops (stop loss orders) on the way up, trade has been driven by speculative flows," he said.
Thursday's stronger-than-expected US producer prices for May and the Philadelphia Fed June manufacturing survey added fuel to the debate over the pace of Federal Reserve rate hikes later this year, although markets seem to have settled on a quarter-point rise this month.
The euro, which had attracted funds because of higher interest rates compared with the dollar and the yen, appeared to be the loser from such talk. Markets expect the euro zone to trail others in the global tightening cycle.
The Federal Reserve is expected to raise official US rates by 25 basis points later this month. The market is also speculating the Bank of Japan will end its hyper-loose monetary policy some time next year.
Analysts are closely watching the outlook for prices in the United States, after recent comments on inflation by top Fed officials prompted sharp swings in market expectations over how much rates would rise in the near-term.
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