ECB President Mario Draghi said on Thursday that the strength of the euro was increasingly relevant to the bank's assessment of price stability - its central goal - because of the impact on inflation, which has strayed well below the official target.
The euro was down 0.3 percent against the yen at 140.88 yen, unwinding all the gains made after the ECB held back from easing policy last Thursday despite projecting persistently low inflation. Draghi's comment then that the euro's strength had very little impact on imported inflation had helped it rally broadly.
The euro stayed below its 2 1-1/2 year highs against the dollar struck on Thursday, trading near $1.39 with Asian central banks cited as buyers at lower levels. Traders said the euro is likely to keep drawing support from the ECB's decision to keep policy unchanged, higher money market rates, and the euro zone's large current account surplus.
Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down on plans to annex its neighbor's Crimea region. U.S. Secretary of State John Kerry said serious steps would be imposed by the United States and Europe if the referendum on Crimea joining Russia takes place on Sunday as planned.
The dollar fell 0.4 percent to 101.45 yen, retreating from Thursday's high near 102.87 with yen bulls targeting the March 3 low of 101.20. On the week, the dollar has lost 1.7 percent, on track for its biggest losses since late January.
Reflecting some of the nervousness, one-week implied volatilities in the dollar/yen pair - a gauge of how sharp currency swings will be - rose to 8.45 percent from a low of around 7.20 percent on Thursday.
Market sentiment was already fragile after another batch of disappointing Chinese data on Thursday reinforced fears of a slowdown in the world's second-biggest economy.
Chinese Premier Li Keqiang warned on Thursday that the economy faced "severe challenges" in 2014 while expectations of more debt defaults kept alive worries about the state of its financial sector.
Commodity-linked currencies, usually sold in times of heightened risk aversion, were under pressure. That took the shine off the Australian and New Zealand dollars.
The Aussie last stood around $0.90, having pulled back from a one-week high close to $0.91, while the kiwi was knocked back to $0.86 from an 11-month peak above $0.86.
Later in the day, investors will see if the U.S. producer price index and the University of Michigan sentiment index offer evidence that the economy is regaining strength, following solid retail sales and employment data on Thursday.
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