The Swiss franc and the Japanese yen are often sought in times of geopolitical tension and have logged big gains against the dollar this week after U.S. President Donald Trump warned North Korea that it would face "fire and fury" if it threatened the United States.
Reuters data show a 22 per cent perceived chance for a rate increase after the Fed's December meeting.
US stocks were on track for their biggest weekly loss in months, shaken by disappointing earnings results and an escalation of threats between the USA and North Korea.
More than 430 stocks from all USA exchanges hit their lowest levels in 52 weeks or more on Thursday, the most for any session since mid-November right after Trump was elected.
Shane Oliver, head of investment strategy at AMP Capital in Sydney, said: "What has changed this time is that the scary threats and war of words between the U.S. and North Korea have intensified to the point that markets can't ignore it".
"Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay. Stocks took a hit for a third straight day Thursday as North Korea's nuclear threats seemed again to roil the markets.
The dollar index fell 0.3 percent, with the euro up 0.36 percent to $1.1812.
But the yen added to an already-strong weekly rally of close to 1.5 percent, hitting its highest in nearly four months versus the dollar at 108.73 yen.
Japan is the world's biggest creditor nation and there is an assumption Japanese investors may repatriate their foreign holdings in times of heightened global uncertainty.
Later in the session dollar traders will be busy monitoring producer prices in the United States, ahead of the key inflation figure tomorrow.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY. The FTSE 100 index of leading British shares was 0.7 percent lower at 7,489.
Looking at currency movements during the Asian session, the yen continued strengthening against the dollar, with the pair trading below the 110 level at 109.96 ahead of European trading.
The dollar last changed hands at 108.96 yen, down 0.2 percent.
In bond markets, the yield on US Treasuries fell, also pressured by the lowered expectations for a Fed move.
Benchmark U.S. 10-year notes last rose 6/32 in price to yield 2.1905 percent, from 2.211 percent late on Thursday. Wall Street's fear gauge-the CBOE Volatility Index or the VIX-jumped 44 percent to 16.04, the highest it has been since Trump was elected on November 8 a year ago.
After touching a more than two-month high at US$1,291.86, spot gold last added 0.2 per cent to US$1,288.81 an ounce. Brent crude, used to price worldwide oils, gained 40 cents to $52.54 in London.
Crude oil prices fell on Thursday, on concerns of lingering global oversupply as Russian Federation considered a future output resumption and OPEC boosted its July production numbers.
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