SYDNEY The U.S. dollar was pinned at three-week lows against a basket of major currencies early on Friday after disappointingly soft U.S. data dealt a blow to the already struggling greenback.
U.S. retail sales fell unexpectedly in January and more Americans filed for jobless benefits last week, the latest signs the world's biggest economy started the year on a softer footing as bad weather took its toll.
The dollar index .DXY slid to a low of 80.194, reaching a level last seen on January 24. It has since crept up to 80.296.
Against the yen, the greenback dipped to 102.18 from Thursday's high of 102.58, while the euro climbed to a near three-week peak of $1.3692.
The dollar's decline came as U.S. Treasury yields fell. Oddly, Wall Street recovered and closed higher as some investors looked past the disappointing data, chalking the weakness up to weather instead of weaker fundamentals.
The euro barely reacted to news that the Italian prime minister will resign on Friday, opening the way for the country's third administration in a year.
Instead, investors are keenly awaiting fourth quarter growth data out of the euro zone later in the day. Analysts polled by Reuters expect slightly faster growth in the 17-nation economy.
"After ECB President (Mario) Draghi specifically pointed to Q4 GDP as a key piece of incoming evidence on the economy, the report should be watched closely today," analysts at BNP Paribas wrote in a note to clients.
Last week, Draghi put markets on alert for possible policy action in March.
Any positive news on growth, however, is still likely to be offset by persistently low inflation, which will be key for further ECB easing and a weaker euro, BNP analysts said.
The standout currency overnight was sterling which climbed to its highest in nearly three years against the greenback. It hit $1.6675, taking total gains this week to more than 1.5 percent.
The soft U.S. data stood in stark contrast with the Bank of England's much more upbeat outlook for the British economy which helped lift the pound this week.
Also in focus is the Australian dollar after it dropped one full U.S. cent on Thursday in the wake of surprisingly weak labor data. It touched a low of $0.8928 before clawing back half its losses to be within reach of 90 U.S. cents.
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent on Friday played down the disappointing jobs data saying unemployment tended to lag economic activity.
The near-term focus for the Aussie is inflation data out of China, Australia's main export market. The Aussie is often used as a liquid proxy for China plays. The data is out later on Friday.
(Editing by Shri Navaratnam)