The dollar rose to its highest since February against a basket of currencies yesterday as investors weighed the likelihood of higher US interest rates, while a measure of world stocks dipped but looked set for its first weekly gain in four weeks.
The euro hit a seven-month low against the dollar after the European Central Bank left its ultra-loose policy unchanged on Thursday but kept the door open to more stimulus in December.
The dollar also was bolstered by comments from New York Federal Reserve President William Dudley earlier this week that the Fed was prepared to raise US overnight interest rates, and by decreasing likelihood of Donald Trump winning the US presidency.
“There have been some Fed comments where they sound like they are ready to move in December, but also partly related is the market view that a hike in December is much more likely if Clinton wins than if Trump wins,” said Steven Englander, global head of foreign exchange strategy at Citigroup in New York.
A Trump victory is seen as more likely to create uncertainty and market volatility, which could delay an interest rate increase.
Traders are now pricing in a 74-per cent chance the Fed will raise rates in December, up from 64 per cent two weeks ago, according to CME Group's FedWatch Tool.
China's offshore yuan fell to its lowest against the dollar in six years, pressuring the currencies and equity shares of emerging market countries that rely on exporting to the world's second largest economy.
Wall Street moved lower despite Microsoft surging to an all-time high. GE's shares were off 2.3 per cent, weighing the most on the S&P 500, after the conglomerate lowered its full-year revenue growth target and narrowed its profit forecast.
“Although earnings have been coming in mixed, GE's comments of a sluggish economy is causing investors to take a step back,” said Andre Bakhos, managing director at Janlyn Capital in Bernardsville, New Jersey.
The Dow Jones industrial average fell 108.37 points, or 0.6 percent, to 18,053.98, the S&P 500 lost 7.43 points, or 0.35 per cent, to 2,133.91 and the Nasdaq Composite dropped 2.81 points, or 0.05 percent, to 5,239.02.
World stocks slipped with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.4 percent and the pan-European STOXX 600 index edging 0.14 per cent lower. World stocks, as measured by MSCI's world index, were still on track for their first week of gains since September.
Longer-dated US Treasury yields fell in step with their European counterparts, pushing both yield curves to their flattest level in a week, in the wake of Draghi's comments about bond purchases.
Oil prices rose modestly but were set for their first weekly loss since mid-September. Brent crude futures rose 0.6 per cent while US WTI crude futures added 0.2 per cent.