SINGAPORE, Sept 8 (Reuters) - The dollar fell on Friday but was still headed for its longest weekly winning streak in nine years, bolstered by a resilient run of U.S. economic data that has also put the end of the Federal Reserve's aggressive rate-increase cycle into question.
China's onshore yuan meanwhile dropped to its lowest level since 2007, as it battles capital outflow pressures and a widening yield gap with major economies.
The U.S. dollar index , which measures the greenback against major peers, was last 0.1% lower at 104.93 but remained not far from the previous session's six-month high of 105.15.
The index was on track to extend its gains into an eighth straight week, and is up 0.6% thus far.
The euro , the largest component in the dollar index, was staring at eight straight weeks of losses, with the single currency last gaining 0.1% to stand at $1.0709, having fallen to a three-month low of $1.0686 on Thursday.
"The relative divergence of the U.S. and European economy is a key topic again and the weaker dollar story has just faded away," said Dane Cekov, senior macro and FX strategist at Nordea Markets.
Data out this week showed the U.S. services sector unexpectedly gained steam in August and that jobless claims hit their lowest level since February last week, while in the euro zone, industrial production in Germany, Europe's largest economy, fell by slightly more than expected in July.
"The U.S. economic data is still robust and in Europe it's flattening out. The dollar usually does well when the U.S. economy outperforms peers and at the moment the U.S. is the bright spot," said Nordea's Cekov.
Sterling edged away from Thursday's three-month low and last bought $1.2496, though was still set to clock a weekly loss of more than 0.7%.
IN THE DOLDRUMS
The onshore yuan opened at 7.3400 per dollar on Friday and hit its weakest level since December 2007 at 7.3510, while its offshore counterpart sank to a 10-month low of 7.3621 per dollar.
China's currency has depreciated steadily since February as the faltering post-pandemic economic recovery and widening yield gap with other economies, particularly the United States, affected capital flows and trade.
The onshore yuan has fallen roughly 6% against the dollar so far this year and has become one of the worst-performing Asian currencies alongside its offshore counterpart.
"The travails of a stumbling (yuan) ... reveals the complexity and profusion of China's underlying economic stress points amid confidence deficit," said Vishnu Varathan, head of economics and strategy at Mizuho Bank.
The yuan's rapid decline has prompted authorities to step in to slow the pace of its depreciation.
Also on traders' radars was a struggling yen , which steadied at 147.37 per dollar but remained on the weaker side of the key 145 level that prompted intervention by Japanese authorities last year.
Japanese Finance Minister Shunichi Suzuki said on Friday that rapid currency moves were undesirable and that authorities wouldn't rule out any options against excessive swings, in a fresh warning to investors trying to sell the yen.
The Bank of Japan is the only major central bank yet to raise interest rates in the current global tightening cycle, although analysts expect a move could come this year.
"It's understandable why the Bank of Japan is moving in tiny steps after 30 years of very low rates," Nordea's Cekov said.
"If you rock the boat you may get undesired consequences and the yen is collateral damage from that perception."
The Australian dollar was last 0.2% higher at $0.6392, but eyed a weekly loss of almost 1%.
The New Zealand dollar similarly was on track to lose roughly 0.7% for the week and last bought $0.59.
Reporting by Samuel Indyk and Rae Wee Editing by Shri Navaratnam, Gerry Doyle and Angus MacSwan
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