The greenback remained under heavy selling pressure versus the Japanese yen in Asian morning after Thursday's cross-inspired selloff to 86.57 and briefly penetrated 2010 low of 86.27 to 86.25 in Asian morning due to active buying of yen versus other currencies on risk aversion due to broad-based weakness in Asian stocks. Later, renewed selling at 86.56 in European morning capped intra-day recovery the pair resumed its downtrend and fell to a fresh 8-month low of 85.95 after the release of weaker-than-expected U.S. GDP, the data showed U.S. economic growth is slowing and reinforced expectations of continuation of low U.S. interest rates. However, dollar pared its losses after the release of U.S. Chicago PMI and rebounded to 86.73 before trading sideways.

U.S. economic growth slowed in Q2 as capital investment driven by business saw imports increasing at their fastest pace since the Q1 of 1984. U.S. GDP expanded at a 2.4% annual rate, versus the economists' forecast of 2.5% and the upward revision of the previous reading from 2.7% to 3.7%.

Business activity in U.S. Midwest grew more than expected in July as businesses boosted employment and orders. Chicago PMI in July rose from 59.1 to 62.3, compared to the estimate of 56.1.

The greenback was also pressured by early news when St. Louis Fed President Bullard said he is concerned on the risk that U.S. might fall into a Japanese-style deflation of falling prices and investment.

In other news, Japan Deputy Finance Minister Motohisa Ikeda said he is worried about the impact of a rising yen on the country's exports. Finance Minister Noda also voiced his concern and said he is watching the forex market closely.

The single currency went through a roller-coaster session on Friday, despite retreating from the previous session's 11-week high of 1.3107 initially at Asian opening, buying interest at 1.3046 lifted euro and price rebounded to an intra-day high of 1.3094 in European opening. However, failure to penetrate said previous day's high prompted investors to sell euro on profit-taking and the single currency tumbled to as low as 1.2980 in European mid-day. Later, euro staged a strong rebound on short-covering and rose back to 1.3071 in NY afternoon before stabilising.

The British pound traded narrowly in Asia and rose to a high of 1.5655 on buying by short-term speculators in European morning. Later, although sterling fell sharply in tandem with euro to an intra-day low of 1.5553, cable staged a strong rebound and later rallied to a fresh 5-month high of 1.5697 after triggering stops above 1.5670 in NY morning as stronger-than-expected U.S. PMI boosted appetite for risky assets, the eur/gbp cross pair fell sharply from 0.8379 to 0.8303.

Sterling was also supported by M&A-related demand, as news came out in Asian mid-day that French EDF has agreed to sell its U.K. electricity grids business to the Hong Kong billionaire Li Ka-shing's Cheung Kong Infrastructure of HK for 5.8 billion pounds.

Economic data to be released next week include:

Swiss Retail sales, PMI , Germany Manufacturing PMI, EU Manufacturing PMI, U.K. Halifax hse prices 3m, Halifax hse prices, Manufacturing PMI, U.S. ISM manufacturing, Construction spending (Canada market is closed for holiday) on Monday, Australia Retail sales, RBA rate decision, Swiss CPI, U.K. PMI construction, EU PPI, U.S. Personal consumption, Personal income, PCE core, PCE index, Pending home sales, Durable goods (rev.), ex. Defense (rev.), ex. Transport (rev.), Factory orders, U.S. Pending home sales on Tuesday, Australia House price index, Trade balance (aud), Germany Services PMI, EU Services PMI, U.K. BRC shop price index, N'wide Consumer Confi., Services PMI, EU Retail sales, U.S. ADP employment, U.S. ISM non-manufacturing on Wednesday, New Zealand Unemployment rate, Germany Industrial prod'n, U.K. BOE rate decision, BOE Asset Purchase Target , EU ECB rate decision, U.S. Jobless claims, Canada Building permits on Thursday, Australia Monetary Policy Statement, Japan Leading indicators, Swiss Unemployment rate, U.K. Industrial prod'n, Industrial prod'n, Manufacturing prod'n, PPI input, PPI output, PPI core, Germany Industrial prod'n, Canada Unemployment rate, Net Change in Employment, Ivey PMI , U.S. Avg. hourly earnings, Non-farm payrolls, Unemployment rate on Friday.