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Euro pulls higher despite Ukraine risk-off; Dollar weakens

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The dollar fell on Friday, failing to get a safe-haven boost despite news that the Ukraine-Russia conflict had entered a potentially dangerous phase as the two forces engaged in armed struggle.

The euro was on track for its fifth week of losses against the dollar on Friday, and hovered near five-month lows against the Swiss franc on growing worries about the euro zone's gloomy economic prospects and more monetary stimulus. But the currency clung to gains as news emerged that Ukraine had destroyed a column of Russian forces.

The dollar, meanwhile, suffered from a hangover of lacklustre weekly jobless claims andretail sales data earlier this week. Earlier in the session, tame producer price data failed to give a boost to the U.S. currency.

Read MoreEuro zone growth stagnates, Germany contracts

The euro was little changed under $1.34. Most investors were selling into a bounce, keeping it close to a nine-month trough of $1.3333 and on track to end lower for the fifth straight week, according to Reuters charts. It was steady against the Swiss franc at 1.2116 francs, having fallen to a five-month low against the Swiss franc of 1.2110 late on Thursday.

The dollar was marginally lower against the yen under 103 yen. The greenback stood to gain about 0.4 percent against the yen this week although Treasury yields remained at low levels, with investors noting the emergence of bearish factors for the yen.

"Risk has evaporated from the markets after the Ukraine headlines,'' said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "We have seen investors use the yen and Swiss franc as safe harbors.''

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Data on Thursday showed growth in the euro zone stalled in the second quarter, with Germany suffering a surprise contraction. At the same time, inflation in the region was confirmed to have slowed to levels not seen since the height of the financial crisis nearly five years ago, leaving deflation a very real threat.

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"With plenty of bad news from the euro zone behind us and investors adjusting their expectations lower, it may be more difficult for euro/dollar to fall from here, based on bad news from the euro zone only," ING analyst Petr Krpata said.

--By Reuters, with CNBC.com

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