The dollar posted its biggest weekly decline in almost four months against a basket of currencies and also saw its largest weekly percentage loss against a surging euro since late March.

"The first key thing is the Fed has knocked real rates down into negative territory, you have economic growth differentials turning against the U.S., so essentially the second wave of coronavirus infections is lowering activity across the states and is weighing on the likelihood of a rebound," said Karl Schamotta, chief market strategist at Cambridge Global Payments.

"At the same time you have relatively positive signs elsewhere in the global economy."

The U.S. Federal Reserve is scheduled to hold a two-day policy meeting next week.

U.S. coronavirus cases passed the 4 million mark. The pandemic has killed more than 143,000 Americans and thrown tens of millions out of work.

Senate Majority Leader Mitch McConnell said on Thursday that U.S. Senate Republicans will unveil their proposal next week for a new round of coronavirus aid, including more direct payments to Americans and a partial extension of enhanced unemployment benefits.

He added that the administration has requested additional time to review the fine details of the proposal.

U.S. unemployment benefits expire next week and without the extension of those benefits, millions of unemployed Americans would struggle massively. U.S. House Speaker Nancy Pelosi said on Friday she was not considering a temporary extension to enhanced unemployment benefits.

In afternoon trading, the dollar fell 0.8% against the yen to 105.99 yen , having dropped to 105.68 yen, the lowest since mid-March.

Against a basket of currencies, the dollar slid 0.4% to 94.42 <=USD>. Earlier in the session, it plunged to 94.358, a fresh 22-month low.

Analysts said U.S.-China tensions also undermined the dollar.

China's foreign ministry told the U.S. embassy early on Friday to close its consulate in the city of Chengdu, after Washington ordered the closure of the Chinese consulate in Houston, which U.S. officials called on Friday "one of the worst offenders in terms of Chinese espionage in the United States."

The euro, meanwhile, hit a fresh 22-month high against the dollar and was last up 0.4% at $1.16415 .

IHS Markit's composite flash July Purchasing Managers' Index (PMI) readings for the euro zone came in above economists' expectations and showed activity bouncing back to growth in July as more businesses reopened after lockdowns to curtail the spread of the coronavirus.

(For graphic on Euro on course for best week in two months: https://fingfx.thomsonreuters.com/gfx/mkt/xlbpgboowvq/Euro%20on%20course%20for%20best%20week%20in%202%20months.png)

The Chinese yuan, a barometer of China-U.S. tensions, looked set for its worst week in nearly three months. It was last down 0.07% at 7.0177 per dollar in the offshore market .

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Currency bid prices at 2:52PM (1852 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1639 $1.1594 +0.39% +3.83% +1.1647 +1.1582

Dollar/Yen JPY= 105.9800 106.8500 -0.81% -2.65% +106.9000 +105.6900

Euro/Yen EURJPY= 123.37 123.91 -0.44% +1.16% +123.9900 +122.8500

Dollar/Swiss CHF= 0.9219 0.9253 -0.37% -4.74% +0.9260 +0.9216

Sterling/Dollar GBP= 1.2790 1.2739 +0.40% -3.54% +1.2803 +1.2719

Dollar/Canadian CAD= 1.3423 1.3408 +0.11% +3.37% +1.3444 +1.3377

Australian/Doll AUD= 0.7097 0.7097 +0.00% +1.08% +0.7124 +0.7065

ar

Euro/Swiss EURCHF= 1.0732 1.0730 +0.02% -1.12% +1.0748 +1.0713

Euro/Sterling EURGBP= 0.9098 0.9100 -0.02% +7.62% +0.9125 +0.9085

NZ NZD= 0.6637 0.6633 +0.06% -1.47% +0.6653 +0.6616

Dollar/Dollar

Dollar/Norway NOK= 9.1689 9.2232 -0.59% +4.45% +9.2579 +9.1658

Euro/Norway EURNOK= 10.6742 10.6968 -0.21% +8.50% +10.7470 +10.6693

Dollar/Sweden SEK= 8.8416 8.8614 +0.12% -5.41% +8.8774 +8.8330

Euro/Sweden EURSEK= 10.2930 10.2805 +0.12% -1.68% +10.3167 +10.2670

By Chuck Mikolajczak