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Gold prices declined after rising to a 1-week peak in the prior session but were on track for a weekly gain underpinned by worries over a global economic recovery from the coronavirus-led slump. However, the slump in the greenback limited the downside.
Spot gold was trading 0.2 percent down at $1,942.26 per ounce by 0726 GMT, having hit a high of $1966.57 on Thursday, its highest since September 2. The safe-haven metal has gained more than 0.4 percent so far this week. U.S. gold futures fell 0.9 percent to $1,947.75.
The dollar index eased against its rivals as the U.S. Senate blocked a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats pushed for more funding. On Thursday, greenback rebounded from a near 1-week low following data showing U.S. producer prices were better-than-expected, with gains of 0.3 percent for the headline and 0.4 percent for the core figure.
Separate data showed U.S. weekly jobless claims hovered at high levels last week, suggesting a slowing labour market recovery and denting hopes for a quick economic rebound. The U.S. initial jobless claims totaled a seasonally adjusted 884,000 for the week ended September 5, matching the number of applicants received the prior week.
Investor risk sentiment also weakened as diplomatic and military tensions between Washington and Beijing appeared to worsen as Taiwan denounced China over air and naval drills off its southwestern coast.
The euro extended gains for the third straight session as the European Central Bank President Christine Lagarde insisted the central bank does not target the exchange rate, indicating the ECB was unlikely to undertake measures to weaken the euro despite its recent gains. Sterling recovered some ground from its previous session slump amid growing fears the UK-EU trade negotiations may fall apart.
The greenback against a basket of currencies traded 0.1 percent down at 93.23, having touched a high of 93.66 on Wednesday, its highest since August 12. The U.S. Treasury yields declined, with the benchmark 10-year note yield trading at 0.67 percent.
