The euro fell to nearly 16-month lows on Friday after Austria became the first country in Western Europe to re-impose a full ban on trade, and Germany did not rule out doing the same.
The single European currency has been declining all week under pressure from growing expectations that interest rates will tighten faster in other countries, especially in the United States.
Against the backdrop of the euro's setbacks, the dollar rose for the fourth consecutive week against its major competitors.
European Central Bank President Christine Lagarde doubled down on her cautious stance on Friday, saying the ECB should not tighten policy as it could undermine the economic recovery.
Austria also said it would require all of its citizens to be vaccinated against COVID-19 by February, and the German Minister of Health warned that restrictions could be imposed in the country.
"One thing is for sure, if all of Europe is locked up again, and depending on how long that lasts, we will have to rethink our growth scenarios," said Stefan Ekolo, global equity strategist at brokerage Tradition.
The euro is down more than 1% this week, dropping two-thirds of a percent on the day to below $ 1.13, close to Wednesday's low of $ 1.12630.
The euro weakened across the board, also hitting more than six-year lows against the Swiss franc, which most recently fell 0.5%.
The General Dollar Index, which tracks the dollar against a basket of six major currencies, is gaining about 1% weekly gain.
On the day, the dollar is up 0.4% to 95.958, close to Wednesday's 16-month high of 96.266.
There are growing expectations that the dollar may strengthen even more next year. US retail sales surpassed expectations this week after inflation came as a surprise last week.
"We believe the combination of Fed timing and slowing global growth should favor the US dollar in 2022," UBS analysts said in their outlook report.
The Japanese yen strengthened following the announcement of Austria's closure as traders sought safe havens, and was last up 0.3% against the dollar to hit 113.93 yen.
Earlier, the currency weakened slightly after the Japanese government introduced a new stimulus package worth 55.7 trillion yen ($ 490 billion).
Sterling has lost some of its recent gains and is down 0.5% at around $ 1.34330.
In cryptocurrencies, Bitcoin dropped below the $ 60,000 mark, and it has entered its worst week in the past six months - it last traded in the $ 57,000 area.
