The U.S. dollar index dropped sharply, hitting session lows on Friday, on reports Michael Flynn may implicate President Donald Trump in the Russian investigation.
ABC News reported that retired Lieutenant General Michael Flynn would testify that he was directed by the Trump administration to make contact with the Russia.
Earlier Friday, Flynn pleaded guilty to knowingly making materially false, fictitious and fraudulent statements to FBI agents, in a plea hearing in Washington, D.C. federal court.
On the news Trump may be implicated, the dollar index dropped 0.18 percent to 92.88, turning negative on the day, after poising to eke out some tiny gains for the week just hours earlier.
The euro climbed as much as 0.3 percent earlier in the session to hit $1.1940 but it gave up most of its gains, trading 0.08 percent lower at $1.1893 on Friday.
"The weakness in equities is causing a mild risk-off sentiment, though the overall mood seems to be quite constructive towards the euro," said Manuel Oliveri, an FX strategist at Credit Agricole in London.
Global manufacturing expanded at the fastest pace for years last month and the second fastest for two decades in the euro zone, driven by robust demand. This has bolstered the case for central banks to shift to tighter monetary policy.
Morgan Stanley strategists said unhedged currency inflows into European stocks have picked up noticeably in recent weeks, pushing up the single currency despite shrinking interest rate differentials.
Investment flows into European assets have picked up at a time when growth prospects have brightened considerably. Business growth is roaring in the final weeks of the year, surveys showed last week.
Elsewhere, the dollar was last at 112.05 yen, falling 0.42 percent on Flynn news and U.S. Senate decision to postpone a vote on the tax bill late on Thursday night.
"Even in a week when the dollar has received some positive news from the progress of the U.S. tax plan, the euro seems to be supported by some strong investment flows," said Richard Falkenhall, senior FX strategist at SEB in Stockholm.
The pound gave up most of its gains after getting a temporary boost from better-than-expected UK manufacturing data.