Against the euro, the dollar was just above a 22-month low of $1.1807 touched overnight. The greenback is set for its worst month in a decade on the common currency as the recovery outlook in Europe brightens just as it darkens in the United States.
The U.S. epidemic has intensified since June. California, Texas and Florida all posted one-day records for fatalities on Wednesday.
Fed Chair Jerome Powell said the new wave of cases were harming the recovery and indicated more fiscal support would help when asked what more could be done.
"Fiscal policy is essential here," he said. "Very likely, more will be needed from all of us. I see Congress negotiating now over a new package, and I think that's a good thing."
However, those negotiations are at an impasse as a Friday deadline for extending a $600-per-week unemployment benefit looms.
Democrats are resisting a stop-gap extension in favour of pressing for passage of a comprehensive bill.
"Concerns around rising virus cases and their impact on the labour market and activity will be further compounded if Congress cannot agree," said Seema Shah, chief strategist at Principal Global Investors in London.
"The recovery is at stake."
The safe haven yen sat at 105.07 per dollar, having hit a four-and-a-half-month high of 104.77 on Wednesday.
The dollar has lost 4.6% of its value against the euro and 2.7% against the yen in July and slid 7% against a basket of currencies since mid May.
The dollar has been tumbling as investors see the virus raging in the United States and begin to doubt the conventional wisdom that U.S. growth and investment returns in dollars can best most other countries.
Advance quarterly GDP data due at 1230 GMT will likely be one for the record books, with economists anticipating a 34% drop in annualised economic output last quarter.
Employment data is also due and further weakness will likely fuel speculation that the Fed might - perhaps at its next meeting in September - loosen its approach to inflation.
"One possible outcome could be adoption of an average inflation target, which would see rates lower for longer, in order to generate an overshoot down the track," ANZ analysts said in a note.
Elsewhere growing nervousness about global tensions with China dragged on risk sentiment. The Australian dollar was 0.1% softer at $0.7178 and the kiwi slipped 0.3% to $0.6646.
Sino-U.S. relations have deteriorated sharply over issues ranging from the pandemic to Beijing's territorial claims in the South China Sea and its clampdown on Hong Kong.
That has weighed on the yuan, which has been all but left behind as the dollar has slumped, and was steady on Thursday at 6.9965 per dollar onshore.
China is also lagging behind agricultural purchases promised under January's trade deal.
Elsewhere, the Turkish lira hovered at a 2-1/2 month low against the dollar and a record low versus the euro, on rising concerns over depleted reserves and local demand for dollars despite state efforts to stabilise trading.
(Reporting by Hideyuki Sano in Tokyo and Tom Westbrook in Singapore; Editing by Sam Holmes and Lincoln Feast.) ((firstname.lastname@example.org; +65 6318 4876;))