Growth-linked currencies such as the Australian dollar also fell as weaker-than-expected Chinese trade data raised worries over a slowdown. However, speculation recent data may lead to further monetary stimulus in China limited losses.
The euro slipped 0.3 percent to $1.2270, off a one-month high of $1.2444 struck on Monday, and on track for its first weekly loss in three weeks. Traders cited bids at $1.2250/60 with offers above $1.2300.
Expectations the ECB will step in to ease borrowing costs for Spain and Italy helped the euro to a one-month high against the dollar and saw it rally against the yen earlier this week.
But some of that optimism is fading with Spanish and Italian two-year bond yields edging higher and pushing some investors to sell the euro and book profits.
"We are seeing some of the reserve managers selling the euro, pulling funds out of the region. The critical areas of support are $1.2250 and $1.2200 and a break below that will take it lower," said Peter Allwright, head FX trader at RWC Capital, a fund manager.
Economy ministry comments that Germany faced "significant risks" linked to the euro zone crisis also weighed on the euro.
Next week, euro zone second-quarter economic output data is expected to show a contraction and is likely to put pressure on the ECB to cut interest rates, a factor that will weigh on the euro.
"The leading indicators out of the euro zone are weak, even in core economies so our fundamental bearish view on the euro remains in place," said Chris Walker, currency strategist at UBS. "We are targeting $1.20 in the next one to three months."
Despite the euro's fall, implied volatilities are subdued. The one-month euro/dollar implied vol traded around 9 percent, against 10 percent a week ago. Option traders said that unless the euro broke below $1.2250, vols would drift lower.
CHINESE NUMBERS
Earlier, below-forecast Chinese data cooled appetite for riskier currencies. Exports grew just 1.0 percent in July year-on-year, below expectations of an 8.6 percent rise. Imports grew 4.7 percent, compared a 7.2 percent forecast rise.
The Australian dollar fell 0.6 percent to $1.0515, a day after touching $1.0615, its highest since March 20.
Before the data, the Aussie dropped after the central bank released its quarterly monetary policy statement, in which it upgraded its 2012 economic outlook but warned a strong currency could constrain growth more than in the past.
With demand for risky assets ebbing, investors chose the safety of the dollar and the yen.
The dollar bought 78.42 yen, down 0.15 percent on the day but still in the narrow 77.90-78.80 yen range that has held since late July. It hit a three-week peak of 78.798 yen on Thursday, with traders citing exporter orders above 79 yen.
Earlier Japan's controversial sales tax bill was passed by the upper house of parliament, a step analysts said could eventually exert pressure on the Bank of Japan to ease monetary policy further in coming months.
Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo, said the dollar could also gain against the yen due to a rise in U.S. Treasury yields on solid U.S. data. This could temper expectations of more Federal Reserve bond buying.
The dollar index was up 0.12 percent at 82.741, well above a one-month low of 82.041 touched on Tuesday.
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