The benchmark 10-year yield <US10YT=RR> hit a three-month trough of 2.826 percent. It was last down over 5 basis points at 2.867 percent.
The euro was 0.26 percent higher against the dollar at $1.1373.
"The problem for the dollar is really a decline in U.S. yields and fading Fed expectations," said Shaun Osborne, chief FX strategist at Scotiabank in Toronto..
Fed policymakers are still widely expected to raise interest rates again at their Dec. 18-19 meeting, but the market focus is on how many rate hikes will follow in 2019.
Interest rate futures implied traders see no more than one rate increase from the Fed in 2019, compared with expectations a month earlier for possibly two rate hikes, according to CME Group's FedWatch program.
The dollar has been under pressure this week as an inversion in part of the U.S. yield curve raised a red flag for a potential recession.
"There are growing concerns about the overall trajectory of the U.S. economy," said Eric Viloria, FX strategist at Credit Agricole in New York.
Some of the concerns stem from slowing global growth, he said.
If there is a slowdown in global growth, then the United States will not be immune, Dallas Federal Reserve Bank's Robert Kaplan said in an interview on CNBC.
The prospect of fading fiscal stimulus in the United States was also hurting investors' confidence in the growth prospects for the U.S. economy, said Viloria.
Data on Thursday showed the U.S. trade deficit jumped to a 10-year high in October as soybean exports dropped further and imports of consumer goods rose to a record high, suggesting the Trump administration's tariff-related measures to shrink the trade gap likely have been ineffective.
On Thursday, the greenback lost ground to the Japanese yen and the Swiss franc, which investors traditionally flock to during times of risk aversion, as global risk sentiment took a hit after news of the arrest in Canada of a top executive of Chinese tech giant Huawei prompted fears of a flare-up in U.S.-China trade tensions.
With reduced appetite for risk, the commodity-sensitive currencies, including the Aussie and the kiwi, slipped against the greenback.
"Currencies are behaving as one would expect against a risk-averse backdrop," said Viloria.
The dollar was 0.4 percent lower against the Japanese yen, while the Aussie fell 0.47 percent. The New Zealand dollar was 0.32 percent lower.
Sterling rose 0.38 percent thanks to the broadly weak dollar though concerns on how the British parliament votes on Prime Minister Theresa May's Brexit deal next week limited gains.
The Canadian dollar fell against its U.S. counterpart to a nearly 18-month low, as Bank of Canada Governor Stephen Poloz said the economy was weaker than forecast and predicted low oil prices would cut growth.
(Reporting by Saqib Iqbal Ahmed; Editing by Dan Grebler and Alistair Bell)
By Saqib Iqbal Ahmed