The euro stayed under pressure in Asia on Friday as worries about the euro zone debt crisis flared up following a jump in Italy's borrowing costs, while investors also kept the dollar at arm's length amid the ongoing threat of a U.S. debt default.

Political rancor on how to tame the mountain of U.S. debt continued without signs of a major breakthrough yet, keeping markets on edge about a possible U.S. default or a credit downgrade.

Worries the U.S. government could soon run out of cash were apparent in money markets, with rates soaring on Treasury bills due shortly after the Aug. 2 deadline to raise the debt limit.

Still, market participants appeared to be hoping that some sort of compromise may yet be struck at the eleventh hour, said Samarjit Shankar, managing director of global FX strategy at BNY Mellon.

"The latest pullback in risk appetite amid the ongoing uncertainty has weighed on most G10 currencies as riskier exposures are wound down," Shankar added.

Investors took aim at the euro in particular as they become increasingly doubtful last week's second bailout for Greece will keep the crisis from spreading to Italy and Spain.

Italy sold 10-year bonds at the highest yields in 11 years on Thursday and data showed euro zone economic sentiment worsened more than expected in July.

The euro fell broadly as a result and struggled to find a firm footing early in Asia. Against the dollar, it hit a one-week low around $1.4251 and was last at $1.4326.

On the Swiss franc, it plumbed a low around 1.1415 francs , nearing a record low just below 1.1400 set early last week.

Commodity currencies also relinquished some of their recent gains on the greenback. The Australian dollar dipped below $1.1000, having climbed to a fresh 29-year high near $1.1080 earlier in the week.

The U.S. dollar, however, remained near an all-time low against the Swiss franc , last trading at 0.8016 francs. It bought 77.75 yen , still within striking distance of a four-month trough of 77.54 set this week.

BNP Paribas analysts noted that liquidity hoarding may be a key feature of Friday's market on the premise that "we may well come in to work on Monday to find a deal has not yet been struck to lift the debt ceiling."

"We therefore flag risks that the USD could draw support from the beginnings of a liquidity squeeze," they said in a client note.

"While we have no doubt that central bank swap lines - quietly renewed among the world's major central banks last month - would be mobilised in the event of severe liquidity stress, this would almost certainly not be until after market stresses had started boosting the dollar." (Additional reporting by Julie Haviv in New York; Editing by Wayne Cole)

New York BNP Paribas New York U.S.