LONDON (AFP) - The dollar fell heavily against the euro and yen after Federal Reserve officials presented a negative outlook for the US currency, as markets looked ahead to a key US employment report, analysts said.
Terrorist attacks in Egypt and Paris weighed also on the dollar.
The single European currency rose to 1.2337 dollars in early European trading from 1.2284 late on Thursday in New York.
The dollar fell to 110.41 yen from 111.15 on Thursday.
"The catalyst for the latest bout of general dollar weakness appears to be comments from Fed Governor (Ben) Bernanke and Dallas Fed President (Robert) McTeer," HBOS currency analyst Steve Pearson said.
In comments made overnight, the pair suggested that over the long-term the large US current account deficit was likely to result in a declining dollar, Pearson added.
Bank of Tokyo-Mitsubishi economist Derek Halpenny said the dollar weakened also following a telephone conversation between US President George W. Bush and Chinese President Hu Jintao, that triggered speculation that the Chinese authorities were close to moving to a more flexible exchange rate regime.
"The speculation led to Asian currency appreciation against the dollar," he said.
Washington charges that the Chinese currency's dollar peg artificially weakens the cost of Chinese exports -- making them more competitive -- while increasing the cost of imported goods in China.
The US currency was further jolted following a series of car bombs at resorts packed with Israeli holidaymakers on the Red Sea coast of Egypt, killing at least 24, analysts said.
An additional 10 people were lightly injured when a bomb exploded outside the Indonesian embassy in Paris.
"Explosions in the Indonesian Embassy in Paris and in Egyptian Red Sea resorts nudged the dollar lower," Commerzbank Securities analysts said in a note to clients.
Dealers were awaiting the release later Friday of key US employment figures, expected to provide a clearer picture of the economy and future US interest rate moves.
Economists expected the employment report to show September non-farm payrolls increasing by 146,000, after a 144,000 rise in the previous month, with the unemployment rate forecast to be unchanged at 5.4 percent.
The euro was changing hands at 1.2337 dollars against 1.2284 late on Thursday in New York, 136.22 yen (136.55), 0.6899 pounds (0.6890) and 1.5516 Swiss francs (1.5527).
The dollar stood at 110.41 yen (111.15) and 1.2577 Swiss francs (1.2639).
The pound was at 1.7882 dollars (1.7825), 197.41 yen (198.12) and 2.2490 Swiss francs (2.2525).
On the London Bullion Market, the price of an ounce of gold stood at 418.60 dollars against 418.10 late on Thursday.