The euro set a fresh record high against the dollar early Friday, though the $1.50 level remained out of reach when the euro was knocked more than a cent off its peak by comments from a euro zone policymaker.
Moves in currencies were exacerbated by thin liquidity in the wake of the Thanksgiving holiday in the United States on Thursday and a Japanese market holiday on Friday.
ECB Governing Council member Miguel Angel Fernandez Ordonez said he saw a stronger than expected slowdown in the euro zone and that there was not enough data to dispel uncertainty about the effects of financial market turmoil.
Ordonez' comments reminded investors that the fallout from the credit crisis is not limited to the United States, where they have prompted 75 basis points worth of cuts in the fed funds rate since September and helped send the dollar to record lows.
The comments gave some respite to the dollar, which slid to new record lows versus the euro, the Swiss franc and a basket of major currencies earlier on Friday as investors bet that the Federal Reserve will cut rates by at least another 25 basis points next month.
However, analysts see few reasons for the resurgence in the dollar to last.
"The most 'hawkish' that the Fed can be is to defer rate cuts from one FOMC meeting to another," wrote Dennis Gartman, an independent investor, in a daily note to clients. "Given the less-than-normal liquidity problems that are always extant over extended holiday periods in the US, today's movements might be somewhat exaggerated, but the trend is the trend is the trend, to paraphrase Gertrude Stein, and the trend for the US dollar is downward from the upper left to the lower right on the charts."
Late morning in New York, the euro was at $1.4799, down 0.4 percent on the day and well below the peak of $1.4966 set earlier in the session, according to Reuters data.
The sell-off in the euro/dollar helped drag the dollar up from 2-1/2 year troughs versus the yen but trading around 107.92 yen, the dollar is still down more than 6 percent since the start of November and on track for its biggest monthly percentage fall versus the yen since March 2000.
The yen and the Swiss franc have both benefited in recent sessions as investors, worried about the fallout from credit market problems and the impact on the broader economy, remained averse to risk.
The dollar index, which measures the dollar against a basket of currencies, fell as low as 74.484 early Friday before rising 0.2 percent to 75.186 in New York trading.
Worries about the fallout have been stoked by the Organization for Economic Co-operation and Development, which warned in a report on Wednesday that overall losses caused by the U.S. mortgage market crisis could conceivably hit $300 billion.
The dollar fell to a historic low of 1.0899 Swiss francs, according to Reuters data, before rallying to trade up 0.2 percent at 1.1031.
Australian elections on Saturday are likely to have limited impact on the Australian dollar, analysts said.
"Regardless of who wins the Australian elections on Saturday, the AUD should remain driven by risk perception," said Dresdner Kleinwort in a note to clients.
The high yielding Australian dollar generally suffers when risk aversion increases. The Australian dollar/dollar last traded little changed at $0.8712.
In other news, Oman plans to keep its currency pegged to the U.S. dollar, Central Bank Executive President Hamood Sangour al-Zadjali said on Friday.