The gains in the yen and the franc came at the expense of the growth-sensitive Australian dollar and Norwegian crown, though thinner volumes after Thursday's U.S. Thanksgiving holiday made market moves more volatile.
The United States will restrict travel from South Africa - where the new mutation was discovered - and neighboring countries beginning Monday, a senior Biden administration official said.
The World Health Organization (WHO) said it was designating the variant, named omicron, as being "of concern," a label applied only to four variants to date. It could take weeks for scientists to fully understand the variant's mutations and potential dangers.
"If we're looking at something like this where we have new mutations on mutations of a spike protein it almost feels like the initial working assumption for most market participants is that this is a new phase of the pandemic," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
"New lockdowns and restrictions will maybe be put in place, and it certainly feels like we're going to need a new vaccine as well," he added.
One of the main gainers was the yen, which bounced off five-year lows hit this week against the greenback, and jumped almost 2% to a high of 113.09, its best day since March 2020.
The euro rose 0.97% to a high of $1.1312, though it fell to more than six-year lows against the resurgent Swiss franc, at 1.0428 francs per euro.
"This is a textbook flight to quality into yen and the Swiss franc on the new virus strain with the thin liquidity also a factor, which may accelerate the unwinding of short bond positions," Kenneth Broux, a strategist at Societe Generale in London, said.
Speculative accounts had been massively short safe-haven assets, with U.S. CFTC figures showing net bearish positioning at $1.2 billion and $10.3 billion for the yen and Swiss franc, respectively, in the latest week.
The dollar index dipped 0.75% to 96.030, after reaching a 16-month high of 96.938 on Wednesday. It has jumped from 93.872 on Nov. 9 as investors increased bets that the Federal Reserve will begin raising interest rates in mid-2022 to thwart stubbornly high inflation.
CIBC's Rai said Friday's decline in the greenback was more likely due to investors taking profits after the currency's recent gains, and not a change in the dollar's safe-haven status.
"The near-term move is mostly about extended positioning and closing those out. Once that becomes a little bit more finely balanced and if we are in a risk-off scenario, then I would expect the dollar to continue to outperform," he said.
Sterling briefly slipped to a new 2021 low below $1.3278 as the jitters prompted some to scale back bets on an interest rate hike in December.
In the crypto currency market bitcoin fell as low as $53,524, the lowest since Oct. 10, while ethereum dropped to $3,917, the lowest since Oct. 28.
Graphic: World FX rates https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
Currency bid prices at 3:22PM (2022 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 96.0110 96.7760 -0.77% 6.701% +96.7870 +95.9850
Euro/Dollar $1.1316 $1.1206 +1.02% -7.35% +$1.1323 +$1.1206
Dollar/Yen 112.8300 115.3700 -1.84% +9.64% +115.3150 +113.0900
Euro/Yen 128.08 129.29 -0.94% +0.91% +129.3300 +127.8100
Dollar/Swiss 0.9218 0.9356 -1.37% +4.31% +0.9359 +0.9216
Sterling/Dollar $1.3330 $1.3318 +0.09% -2.43% +$1.3349 +$1.3278
Dollar/Canadian 1.2777 1.2646 +1.08% +0.38% +1.2799 +1.2650
Aussie/Dollar $0.7113 $0.7186 -0.95% -7.48% +$0.7190 +$0.7113
Euro/Swiss 1.0433 1.0485 -0.50% -3.46% +1.0490 +1.0429
Euro/Sterling 0.8484 0.8411 +0.87% -5.07% +0.8495 +0.8413
NZ $0.6808 $0.6854 -0.63% -5.17% +$0.6856 +$0.6805
Dollar/Norway 8.9800 8.9530 +1.17% +5.49% +9.1010 +8.9850
Euro/Norway 10.2380 10.0493 +1.88% -2.19% +10.2941 +10.0486
Dollar/Sweden 9.0852 9.0851 +1.23% +10.91% +9.1830 +9.0661
Euro/Sweden 10.3107 10.1855 +1.23% +2.33% +10.3365 +10.1865
(Additional reporting by Saikat Chatterjee and Sujata Rao in London; editing by Barbara Lewis and Leslie Adler)
By Karen Brettell