Delhi: The euro and yen held on to solid gains early on Friday, having enjoyed a short-covering rally as heightened risk aversion took a heavy toll on commodity currencies such as the Australian dollar.
Investors were anxiously awaiting the yuan fix to see if China`s central bank allowed it to fall yet further, a move that would likely intensify pressure on regional currencies and benefit the yen.
Oddly, the euro was one of the few to outperform the safe-haven yen on Thursday, bouncing to 128.50 from an 8-1/2 month trough of 126.79.
Against the greenback, the common currency was back above $1.0900 following a 1.4 percent surge - its biggest one-day gain in a month. It was last at $1.0922.
The surprisingly strong move led analysts at CitiFX to question if the euro is the new safe haven.
"The verdict is still out. It could be on equities or positioning and it`s also not clear if Thursday`s rally was partially fundamentally driven. But overall, data is mixed," they wrote in a note to clients.
Indeed, figures on Thursday showed German industry orders and euro zone confidence beat expectations, but retail sales undershot forecasts.
The dollar was last at 117.60 yen , not far off a four-month trough of 117.33 set overnight. On the week, it is down more than 2 percent.
The U.S. non-farm payrolls report due later on Friday could turn things around for the greenback. A strong report should shift market attention back to the Federal Reserve and prospects of more U.S. interest rate hikes this year.
The tumult in markets and China this week has so far led investors to wager on even less tightening this year, one factor undermining the dollar.
The weakest performers by far were the commodity currencies, particularly the Australian dollar, often used as a liquid proxy for China plays.
The Aussie skidded below 70 U.S. cents to be down more than 3 U.S. cents on the week. It has drifted back to $0.7015, but was still sporting a huge weekly loss of 3.7 percent.
Australia`s retail sales data due at 0030 GMT could provide some distraction, but more likely China concerns will continue to dominate market sentiment