US DATA: The other potential driver in markets will be upcoming USA economic data, including monthly inflation figures, which could go a long way to determining expectations for the pace at which the Federal Reserve raises interest rates.
The CBOE Volatility Index - a measure of investors' expectations for swings in the S&P 500 over the next 30 days - surged 44% to 16.04 Thursday - its highest level since U.S. Election Day.
In a note sent to clients late on Thursday, the US bank predicted the single currency would rise to $1.25 in the first quarter of next year and reach parity with sterling for the first time. "The market is interpreting it as lowering the odds of the Fed raising rates in December", said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta.
There were further tensions surrounding North Korea on Thursday with the Pyongyang regime claiming that missiles which could be used to target the Pacific island of Guam would be ready to launch by mid-August. Macy's sank 10.3 per cent and Kohl's lost 5.8 per cent.
While the German DAX Index closed just below the unchanged line, the UK's FTSE 100 Index and the French CAC 40 Index both tumbled by 1.1%.
Seagate Technology gained 2.3 percent after investor ValueAct disclosed that it had acquired a 7.2 percent stake in the company.
Stock futures were trading lower on Friday, Aug. 11, as concerns over North Korea and President Donald Trump kept global markets on edge.
The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis take place.
Low U.S. Treasury yields are also weighing on the dollar.
Dudley also cautioned that "it's going to take some time" for inflation to rise to the central bank's 2 percent target even as he offered a generally positive outlook for the US economy, job market and price pressures.
The euro held steady at $1.1776.
But losses soon resumed, with Tokyo edging down as the Nikkei again came under pressure from the strength of the safe-haven yen, which hit eight-week highs Wednesday against the dollar.
The S&P is trading near its most expensive valuation level since 2004, as measured by the price-to-12-month forward earnings ratio.
The latest United States economic data cemented expectations that inflation will remain subdued amid a robust labour market.
The decline in equity markets and a dip in United States bond yields triggered fresh demand for precious metals and gold pushed to fresh 2-month highs around $1,288. It was on course for a weekly rise of about 5%, the biggest such gain since July 2016.
OIL: Benchmark U.S. crude lost 24 cents to $48.37 per barrel on the on the New York Mercantile Exchange while Brent crude, used to price global oils, declined 20 cents to $51.70 per barrel in London. Brent crude, used to price worldwide oils, gained 16 cents to $52.30 in London.