In early European trading the euro dropped to 1.3659 dollars, the lowest level since July 10. It later stood at 1.3673 dollars, down from 1.3743 late on Thursday in New York.

The dollar had risen to 119.22 yen from 118.68 yen late on Thursday.

Ahead of US gross domestic product numbers for the second quarter, the dollar was winning support from a general flight to safety as investors' appetite for risk dwindles, analysts said.

The recent climate of risk aversion had initially dragged the dollar lower in recent weeks because the focus was on the woes of US credit markets.

However, as the concerns take on a more global scale, the dollar has benefited as investors pull out of emerging markets.

"The case for the US dollar is mixed," BNP Paribas analysts said on Friday.

"On the one hand, a rise in risk aversion leads to a 'flight to safety' that is typically dollar positive. However, this worsening credit environment is emanating from the US," they added.

In earlier Asian trade, the dollar firmed from three-month lows against the yen despite growing gloom over the US housing market.

It clawed back after falling heavily against the yen, which was lifted by an unwinding of the so-called carry trade by speculators who have borrowed cheaply in Japan to invest overseas.

The dollar's recent sharp falls attracted buyers, despite continued negative sentiment about the US unit, said Nobuaki Tani, a manager in foreign exchange sales at Resona Bank.

The gloom over the US housing sector had deepened on Thursday after official data showed sales of new homes had fallen by 6.6 percent in June.

Meanwhile the yen was also wobbling ahead of Japan's weekend elections amid speculation that political and economic uncertainty could deter the central bank from raising interest rates next month, dealers said.

"The dollar attracted some buying ahead of the elections amid news reports that the ruling coalition is on course to a defeat," Resona Bank's Tani said.

The euro was changing hands at 1.3673 dollars, against 1.3743 dollars late on Thursday, 162.99 yen (163.13), 0.6711 pounds (0.6707) and 1.6555 Swiss francs (1.6539).

The dollar stood at 119.22 yen (118.68) and 1.2109 Swiss francs (1.2032).

The pound was being traded at 2.0377 dollars (2.0484).

On the London Bullion Market, the price of gold fell to 663.60 dollars per ounce from 670 dollars late on Thursday.