The euro fell briefly below $1.20 for the first time in 10 months today but recovered some ground as investors waited to see what ECB president Jean-Claude Trichet would say on interest rates in a speech later today.
The euro has come under pressure from growing expectations of lower rates in the currency bloc this week after Sweden's aggressive rate cut and weak Bank of England minutes.
Mr Trichet is due to speak on monetary policy at a forum in Mannheim, Germany later.
ECB policymakers this week have said that rates are at appropriate levels. "We'd need some material new information from Trichet to push the euro back below $1.20," said Shahab Jalinoos, senior currency strategist at ABN AMRO.
"The market is very mindful of a potential rate cut. What Trichet says will be perused in depth," he added.
The US Federal Reserve, in contrast, remains on a rate-tightening path and is expected to raise rates by 25 basis points next week.
The euro broke fleetingly below a key technical and options barrier at $1.20 to a ten month low at $1.1980 in Tokyo trade but recovered to $1.2069 by 0945 GMT, up a quarter percent from the US close.
The euro rose half a per cent to 131.77 yen after hitting a 1-year low on Thursday on revived speculation that China will soon loosen the yuan's tight peg to the dollar.
The yen often trades as a proxy for the yuan. The dollar was slightly firmer against the yen at 109.17. Oil prices rose to touch $60 for a second day on Friday, extending a streak of record highs.
Higher oil prices typically hurt the yen, as Japan imports all of its energy needs.