The number of Americans filing new claims for unemployment benefits surged to the highest in more than 1-1/2 years last week, data on Thursday showed, though layoffs are probably not accelerating as the data covered the Memorial Day holiday, which could have injected some volatility.

Nonetheless, that was enough to knock the US dollar to a more than two-week low against a basket of currencies in the previous session, as investors took the data as a sign that the US labor market was slowing.

The dollar index last stood at 103.41 in Asia trade on Friday, having lost more than 0.7 percent in the previous session, its largest daily decline in weeks.

The index, which measures the US currency against six major peers, is down 0.6 percent for the week, set for its worst week since mid-March.

Against the Japanese yen, the greenback dipped to a one-week low of 138.765, tracking a slide in US Treasury yields. It was fetching 139.27 per dollar.

The benchmark 10-year Treasury yield last stood at 3.7317 percent, after falling 7 basis points on Thursday. The two-year yield, which typically moves in step with interest rate expectations, steadied at 4.5261 percent.

"We do think that the US, like many economies, will go through a shallow recession this year. So that'll show up in payrolls numbers and jobless claims and these sorts of numbers," said Jarrod Kerr, chief economist at Kiwibank.

Elsewhere, sterling touched a near one-month high of $1.2564, while the kiwi eased 0.11 percent to $0.6089.

The Turkish lira tumbled more than 1 percent against the dollar to a record low of 23.54 after President Tayyip Erdogan appointed Hafize Gaye Erkan, a finance executive in the United States, to head Turkey's central bank.

"A return to policy orthodoxy seems inevitable given the materially diminished foreign exchange reserves and 40 percent inflation," said Mohammed Elmi, senior portfolio manager for emerging markets fixed income at Federated Hermes.

ACTION-PACKED CENTRAL BANK WEEK

Markets are now turning their attention to the coming week which will see the Federal Reserve, the European Central Bank (ECB) and the Bank of Japan (BOJ) announce interest rate decisions following their respective policy meetings.

The Fed takes centre stage, with money markets leaning toward a pause, though they have priced in a 25 percent chance that the US central bank delivers a 25-bps rate hike.

"A slowing US economy gives the Fed room to pause after 500 bps of consecutive interest rate rises," said Guillermo Felices, global investment strategist at PGIM Fixed Income.

"The key question for markets is whether the Fed will just skip a hike in June and resume their tightening campaign in July."

Meanwhile, a clear majority of economists polled by Reuters expect the ECB to hike its key interest rates by 25 bps on June 15 and again in July before pausing for the rest of the year as inflation remains sticky.

The euro was last steady at $1.0776, flirting with Thursday's over two-week high of $1.0787. The single currency is up 0.6 percent for the week and on course to snap four-week losing streak.

The Canadian dollar last bought C$1.3371, not far from its one-month high of C$1.3321 hit on Wednesday, while the Aussie stood near a roughly one-month peak at $0.6711.

Both currencies have drawn support from surprise rate increases by their respective central banks this week, which caused markets to revise their expectations for a peak in global interest rates.

China's yuan weakened as deepening factory gate deflation added to investors' concerns about the country's fragile economic recovery.