The dollar fell to an eight-month low against the yen on Friday while global shares slipped on worries U.S. growth data due later in the day may show the world's biggest economy is losing steam.
The retreat in stocks and other riskier assets fed a rally in theoretically safer euro zone and U.S. government bond prices, with comments from a Federal Reserve official that adding to fears about the economy.
The second quarter GDP data, due at 1230 GMT (8:30 a.m. EDT), will be particularly closely watched after a stream of economic data in the past month flagged a slowdown in the U.S. economy's recovery from the worst downturn since the 1930s.
The dollar was down 0.6 percent at 86.38 yen by 1053 GMT (6:53 a.m. EDT), after hitting an eight-month low of 86.15 yen on trading platform EBS. Stop-loss trades below the previous low of 86.25 yen were triggered before support emerged from bids in the 86.20 yen area.
U.S. economic data is underperforming and keeping pressure on the dollar, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
Concerns about the U.S. economy and Fed easing will also put U.S. yields, which are a key driver for dollar/yen, on the downside, he said.
Two-year U.S. Treasury note yields, which move inversely to prices, hovered near record lows of around 0.556 percent set earlier this month ahead of the GDP data.
Benchmark U.S. 10-year Treasury note yields were about three basis points lower at 2.961 percent. The yields hit a 15-month low of 2.855 percent earlier this month on persistent fears the economy was tipping back into recession.
The dollar also fell to a six-month low against the Swiss franc of 1.0364 francs.
The euro, meanwhile, fell 0.6 percent to $1.3000, pulling back from a 12-week peak of $1.3107 hit on Thursday, when data showed a jump in euro zone economic sentiment and lower German unemployment.
The grind higher in euro/dollar may continue but it seems there is still plenty of selling interest out there in the market, said Daragh Maher, deputy head of FX strategy at Credit Agricole CIB. Some softer U.S. data would clearly help the bullish euro case.
JAPAN STYLE QUAGMIRE?
Economists forecast U.S. growth to have slowed to 2.5 percent in the three months to June from 2.7 percent in the first quarter. But worries persist it could come in weaker.
St. Louis Federal Reserve Bank President James Bullard, a voting member on the Fed's rate-setting committee this year, said he was worried about the risks the United States might fall into a Japan-style quagmire of falling prices and investment.
World stocks as measured by MSCI .MIWD00000PUS were 0.4 percent down as European shares retreated for a third consecutive session.
The pan-European FTSEurofirst 300 index shed 0.3 percent but was still on track to record its best monthly gain since March, helped by upbeat corporate earnings.
What I see in this market is a fight between macro-economic data and better-than-expected company results, said Koen De Leus, economist at KBC Securities. It appears the U.S. Federal Reserve is preparing the markets for worst-than-expected data.
Japan's Nikkei .N225 closed down 1.6 percent as signs that the U.S. recovery was faltering outweighed upbeat domestic earnings.
Sluggish jobs growth, marked by a 9.5 percent unemployment rate, is the biggest obstacle to the U.S. economy's recovery from the most brutal recession since the 1930s.
In Britain, consumer confidence fell for the fifth month in a row in July to its lowest in almost a year, further cooling deemed for riskier assets.
This type of news flow will continue to depress expectations over the pace of economic recovery, said Gerard Lane, analyst at Shore Capital.
U.S. crude prices retreated, heading for a fourth consecutive weekly settlement within the $75-$80 range, with investor focus on a slowing economy and rising U.S. inventories.
(Additional reporting by Tamawa Desai and Atul Prakash; Editing by Ron Askew)