- Euro back above $1.17, highest since August
- Weaker U.S. inflation weighs on dollar
- Emerging market rally fires up broader markets
- Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
(Adds details, updates prices, quotes)
The euro rose to a two-week high on Friday after weaker-than-expected U.S. inflation data continued to weigh on the dollar and a broader recovery in investment sentiment supported the single currency.
The Turkish central bank's decision on Thursday to hike interest rates sharply sparked a recovery across emerging market assets, and hopes of a new round of trade talks to reduce tensions between United States and China buoyed broader market sentiment into Friday.
"The market is focused on whether the improvement in sentiment and the recovery in emerging markets will continue," said Esther Reichelt, an analyst at Commerzbank in Frankfurt.
The euro rose 0.2 percent to as high as $1.1721 EUR= , its highest since Aug. 28. .DXY
The European Central Bank kept policy unchanged as expected on Thursday, staying on track to end its bond purchases this year and raise interest rates next autumn. The policy meeting's impact on the euro was minimal.
Weaker U.S. inflation data published on Thursday continued to hurt the dollar, and the greenback index .DXY dropped slightly to 94.483. The U.S. currency is on track for its fourth-biggest weekly drop in 2018.
Emerging market currencies held onto gains after a big rise on Thursday, as investors welcomed Turkey's central bank's move to hike policy rates to 24 percent to restore confidence in the lira.
The lira - down more than a third in 2018 - was flat against the dollar at 6.064 TRY= after ending the previous day on a gain of more than 4 percent.
South Africa's rand ZAR= and Russia's rouble RUB= , which both suffered heavily in recent months as investors panicked about a deepening selloff across emerging markets, weakened slightly on Friday but retained most of their gains.
China's offshore yuan slipped 0.1 percent to 6.8475 CNH= . Data on Friday showed China's investment growth for August fell to a new record low, while industrial output and retail sales for the month rose by more than expected.
Chinese officials welcomed an invitation from Treasury Secretary Steven Mnuchin for new talks to resolve the Sino-U.S. trade conflict, although U.S. President Donald Trump tempered market expectations.
DOLLAR SUFFERS Investors have taken fright at what 2018's rallying dollar will mean for global financing costs, and so this week's drop in the greenback helped lift the mood among investors.
Currencies hit hard recently capitalised on the better sentiment.
The Australian dollar AUD= , seen as a barometer of risk sentiment, is on track for its second biggest weekly rise in 2018, as is the Norwegian crown NOK= .
The euro is also headed for its second strongest week in 2018 versus the safe-haven Swiss franc EURCHF= , up 0.8 percent since Monday.
The Australian dollar rose 0.1 percent to above $0.72, pulling further away from a 2-1/2-year low of $0.7085 plumbed on Tuesday.
Adam Cole, chief currency strategist at RBC, said "our bias is to look for opportunities to use recent Australian dollar weakness to play the topside."
The yen rose 0.1 percent to 111.79 JPY= versus the dollar.
