Dollar down after poor U.S. producer prices and rising unemployment claimants

The fall comes against a background of increasing tension between North Korea and the US, with the former making a threat to land a missile just short of the US Pacific territory of Guam. This downfall, which was the biggest one in 11 months, surprised analysts who expected producer prices to climb by 0.1% instead as with a month ago. They suggest the USA and China, a North Korean ally, could work together to de-escalate the situation.

The so-called fear gauge - the CBOE Volatility Index (VIX), the most widely followed barometer of expected U.S. stock market volatility, hit its highest since November 8, when Mr Trump was elected president.

Stocks going ex-dividend included BT, Royal Dutch Shell, BP, Lloyds, and pharma companies GSK and AstraZeneca, taking around 41 points off the index.

Dow Jones Industrial Average futures fell 55 points, or 0.3%, to 21,963, while S&P 500 futures dropped 9.50 points, or 0.4%, to 2,463.50.

Markets in Italy, France and Germany also saw declines. With the sell-off on the day, the Nasdaq and the S&P 500 fell to their lowest closing levels in a month.

FED WATCH: Investors looked ahead to an appearance Thursday by Bill Dudley, president of the U.S. Federal Reserve Bank of NY, for signs of the Fed's outlook on the economy.

Until this week, the equity market had managed to shake off negative news, including previous saber-rattling over North Korea and failures in Washington to pass high-profile bills, such as repealing and replacing Obamacare.

U.S. markets fell on Wednesday morning, spooked by rising tension between the United States and North Korea. Other safe havens for investors were the Swiss franc and gold.

The yen on Friday added to a strong weekly rally against the dollar of close to 1.5 per cent, hitting its highest versus the greenback in nearly four months, at 108.73 yen.

Analysts warned the softening dollar could test June's low of 108.82 yen and even the 2017 trough of 108.13 yen.

"Heightened geopolitical risks overnight have seen the markets flip from risk-on to risk-off and we have to wait and see how long this move runs before adding some positions", said Viraj Patel, an FX strategist at ING in London. The 30-year bond was last up 4/32 in price to yield 2.7871 per cent, from 2.794 per cent late on Thursday.

The dollar index, which tracks the greenback against six rival currencies, edged higher after Dudley's comments and was up 0.03% to 93.577.

Crude oil prices fell on Thursday, on concerns of lingering global oversupply as Russian Federation considered a future output resumption and OPEC boosted its July production numbers.

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