The yen and Swiss franc gained on Friday as investors sought safe-haven currencies due to US-China trade war concerns, political uncertainty in Italy, and weak economic data around the world. Deep liquidity and current account surpluses in Japan and Switzerland attract safe-haven flows to their currencies during times of geopolitical and economic stress.
"The strength of the yen will not be welcomed by the BoJ (Bank of Japan), which continues to struggle to push Japanese CPI inflation towards its 2% goal," said Jane Foley, senior FX strategist at Rabobank in London. The yen soared to a seven-month high against the dollar.
"The recent escalation in trade wars between the US and China suggests there is potential for robust demand for safe-haven assets going forward and this implies ample scope for a firmer yen," she added.
The same holds true for the Swiss franc, Foley said, with the economy also in a much better budget position than Japan.
US stocks fell sharply after President Donald Trump said on Friday that he was not ready to make a trade deal with China and had decided that the United States would not do business with Chinese telecoms giant Huawei Technologies for the time being.
Also on Friday, data showed underlying US producer prices fell 0.1% in July, suggesting inflation remained muted, and Canada's economy lost 24,200 jobs last month.
In Britain, the economy shrank for the first time since 2012 in the second quarter and sterling slid to a 31-month low against the dollar.
"Take your pick. You look around the world, all the data were negative or at least concerning," said John Doyle, vice president for dealing and trading at Tempus in Washington. "Of course, you're going to see an uptick in the Swissie (franc) and the yen."
A sell-off in Italian bonds after the League party filed a no-confidence motion against its own governing coalition also added to the global tension. The party's populist chief Matteo Salvini hopes that the move will trigger early elections and install him as the new leader.
The dollar weakened against a basket of currencies, pressured as Trump repeated his call for a weaker currency to help American manufacturers.
Trump told reporters at the White House he believes the Federal Reserve needs to lower interest rates by a full percentage point.
In afternoon trading, the dollar fell 0.5% against a surging yen to 105.58 yen, after earlier dropping to a seven-month low of 105.25. The yen posted its second weekly gain versus the US dollar and its third weekly rise versus the Australian and New Zealand dollars.
The Swiss franc rose versus the dollar and euro. The dollar was last down 0.3% at 0.9723 franc, while the euro slipped 0.1% at 1.0892 francs.
The euro rose 0.2% against the dollar to $1.1205, showing little reaction after Salvini called for early elections.
The dollar index dipped 0.1% slipped to 97.508, posting its biggest weekly decline since June 21.
Sterling fell 0.7% to $1.2050 against the dollar and 0.7% versus the euro, which rose to 92.81 pence, after the UK's weak data.