The dollar fell from a four-week peak on Thursday after U.S. labor market data failed to impress a day before a key jobs report, and as Treasury yields rose but eased at the key short end.
Nonfarm-productivity rose to an annualized 3.7% to help curb growth in labor costs and offer another boost to the improving U.S. inflation outlook. But labor productivity has grown at a 1.4% rate since the fourth quarter of 2019, well below the long-term average since 1947 of 2.1%.
Other data showed the number of Americans filing new claims for unemployment benefits rose slightly last week, while layoffs dropped to an 11-month low in July as labor market conditions remain tight.
"The activity data in the U.S. has shown a lot of resilience compared to the rest of the world," said Vassili Serebriakov, FX and macro strategist at UBS in New York, adding he did not find the day's data "particularly impactful."
The dollar also has been bolstered by the carry trade, when investors borrow in currencies with low interest rates and invest in the dollar or dollar-based assets.
"U.S. short-term rates are among the highest in the G10 or almost the highest in the G10, said Serebriakov, referring to industrialized nations that form the group. "That means if you're long dollars, you receive positive carry, and those are probably the two main drivers" of the dollar.
The dollar index , which measures the currency against six major peers, fell 0.049% .
The closely watched U.S. nonfarm payrolls report is due on Friday.
Sterling remained lower after the Bank of England downshifted to a smaller 25 basis point hike. The pound last traded at $ 1.2703 , down 0.05% on the day.
"The relative disparity in the trajectory of future monetary policy, against a backdrop of better-than-expected economic growth data, has catalyzed a rally in the UK pound this year," said John Leiper, chief investment officer at Titan Asset Management.
"But momentum has dwindled recently, following the latest inflation number ... and signs today that the bank is becoming a little more relaxed around the direction of travel."
The safe-haven Japanese yen strengthened 0.67%, at 142.34 per dollar, benefiting from risk aversion as global equities extended their recent decline. Earlier, the currency fell to a four-week low of 143.89 per dollar.
The Japanese currency had come under pressure this week even as the Bank of Japan on Friday loosened its grip on interest rates. Policymakers have also been quick to push back against speculation that the move was a prelude to an imminent exit of the central bank's ultra-easy policy.
The euro fell 0.01% to $ 1.0935 , while the Aussie hit a two-month low of $0.6514.
Elsewhere in Asia, China's offshore yuan strengthened after data on Thursday showed the country's services activity expanded slightly faster in July, though investors continue to be on the lookout for further support measures from Beijing following last week's Politburo meeting.