The euro fell to its lowest since October on Friday after German industrial output recorded its biggest decline in a decade in December and a recent batch of strong employment data in the United States encouraged investors to buy the dollar.
The dollar has gained in recent sessions thanks to solid data. It has also benefited as investors shied away from riskier currencies while assessing the fallout from the coronavirus outbreak in China, where the death toll continues to climb.
The focus for Friday is US non-farm payrolls data due at 1330 GMT which is expected to confirm that the labour market in the world's biggest economy is in robust health. MUFG analyst Derek Halpenny said the Germany data undermined European Central Bank President Christine Lagarde's comments on Thursday that the euro zone economy was stabilising.
The euro fell as low as $1.0948, down 0.3% on the day, and has now lost 1.2% since Monday, putting it on track for its worst week since November. "The hard data sits inconsistently with most sentiment data pointing to some improvement. But the political line that 'recovery is coming' is losing credibility fast," Halpenny said.
"The October 2019 low of $1.0879 is now a credible near-term target given the scale of weakness in the German data, especially if the much-anticipated improvement in the coronavirus outlook fails to materialise." Falls in the offshore Chinese yuan and gains for the Japanese yen underlined the more cautious mood setting on Friday after a week in which stock markets and other riskier assets rebounded sharply despite concerns about the virus and growth.
The offshore yuan slipped 0.3% to 6.997 yuan per dollar, though it was still set for a small gain this week thanks to stimulus from China's central bank and Beijing's announcement of tariff cuts on US imports. The Australian dollar, often seen as a proxy for China, weakened 0.7% to $0.6672, its lowest since October, after the Reserve Bank of Australia slashed growth forecasts in its quarterly economic outlook.
The US dollar, which is on course for its biggest weekly gain against the yen since July 2018, dropped against the Japanese currency on Friday, trading 0.2% lower at 109.81 yen. The dollar index, which measures the currency against a basket of rivals, edged 0.1% higher to 98.597, its strongest since mid-October.
Sterling was headed for its worst week since the aftermath of December's general election, dogged by persistent worries about negotiations between Britain and the European Union for a post-Brexit trade deal. The pound was last at $1.2932. It staged a small recovery against the euro, rising 0.3% to 84.70 pence.