NEW YORK (MarketWatch) -- The euro came under pressure Friday, losing ground against the dollar and major counterparts as data confirmed expectations the 15-nation euro zone had tumbled into recession for the first time since the single currency's introduction nearly 10 years ago.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, rose 1% to 87.392 from around 86.445 in North American activity late Thursday. It's up about 2% for the week and 14% for the year.
The euro remained well above its weekly low, but traded at $1.2596 against the dollar. That's down from $1.2787 in North American activity late Thursday.
The single European currency also lost against its Japanese counterpart, trading off about 2% to 122.15 yen. Versus the British pound, it traded at 85.404 pence after hitting a series of all-time highs against a broadly weaker British pound earlier in the week.
The region's third-quarter gross domestic product shrank 0.2% compared to the previous quarter, according to the statistical agency Eurostat. The second quarter also saw a 0.2% decline.
Recession is commonly defined as two or more consecutive quarters of falling GDP. See full story.
"France, however, saw some good news with GDP actually increasing 0.1%, countering expectations of a like-sized decline," said Benjamin Reitzes, an economist at BMO Capital Markets. "That's likely what kept the Euro area from contracting at a quicker pace since Italy and Germany both fell more than expected."
Meanwhile, annualized consumer price inflation across the 15-nation euro zone slowed to a 3.2% pace in October from 3.6% in September, Eurostat reported.
Economists expect inflation to continue falling rapidly, leaving the Frankfurt-based European Central Bank plenty of room to slash interest rates.
The dollar and, to an even greater extent, the yen were primary beneficiaries of an intense round of deleveraging, liquidation and safe-haven flows in October. The currencies gave back some ground after the end of the month as risk appetite revived on ideas equity markets have seen their lows.
The dollar weakened late Thursday as equities bounced back late in the day after a test of recent lows.
But otherwise, risk aversion was on the upswing in the past week.
"Ironically, it has been the recent deluge of weak economic data that has been the major factor in this transition given that it has dispelled all but the most optimistic hopes that a pronounced economic downturn can be avoided," said Neil Mellor, currency strategist at Bank of New York Mellon.
Dollar up on pound
The greenback lost some steam after data showed October retail sales plunged a record 2.8%, worse than the 2.3% economists polled by MarketWatch expected. See full story.
The dollar fell against the Japanese yen to 97.02 yen from 97.79 yen.
But it gained against the euro and the British pound, which sank to $1.4749 from $1.4822.
Strategists said this weekend's summit of leaders from the Group of 20 industrialized and developing nations in Washington could prompt traders to close out positions by the end of the day. Read about the summit.
"The G20 looms large this weekend and implies that positions in foreign exchange may be squared ahead of any announcement of coordinated measures to support the global economy," wrote economists at Lloyds TSB. "This will in all likelihood determine price action in foreign exchange and stocks when trading resumes on Monday."
But strategists at Commerzbank said signs of strains between the United States and European leaders on how to regulate financial markets, and other matters, indicates the most likely outcome will be "vague statements" and pledges to work together.
"This, however, will not be sufficient to calm the markets," they wrote. "The fear of recession is therefore unlikely to recede and the dollar will continue to benefit from flight to quality while trading remains volatile."
