The dollar tumbled more than 1 percent against the euro and the yen on Friday as strikingly weak Chinese factory data fanned global growth worries and cooled betting that the Federal Reserve will raise U.S. interest rates next month.
Chinese manufacturing activity shrank at its fastest pace in 6-1/2 years in August, compounding investor concerns over slowing growth in the world's No. 2 economy and ignited sell-offs in equities and commodities.
Markets had been reckoning that a solid U.S. economy could prompt the Fed to raise rates for the first time in nearly 10 years as soon as September. However, soft Chinese economic data, sliding commodity prices and unconvincing U.S. inflation data have dulled expectations of a near-term U.S. rate hike.
Higher rates would raise borrowing costs for consumers and companies, possibly hurting spending and economic growth.