Reuters data show a 28-percent chance for a hike after the Fed's December meeting.
The North Korean state media, describing President Donald Trump's warning of "fire and fury" as a "load of nonsense" said they aim to develop a plan by mid-August to launch four missiles at the USA territory of Guam.
"We're not very oversold yet so the market still has more downside left to it".
Market watchers said the demand for gold bars is expected to continue increasing for the time being, until the tension on the Korean Peninsula settles down.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5 percent, while Japan's Nikkei lost 1.3 percent as the stronger yen sapped investor appetite. Shanghai Composite Index tumbled 1.9 percent to 3,201.45. "Pretty remarkable, perhaps even extraordinary, considering", said Tim Ash, strategist at fund manager BlueBay.
"There is a rhetorical war between the two nations, and traders (as are most human beings) are nervous", said Chris Weston, chief market strategist at IG, in a note to clients.
Many markets had already been at record or multi-year highs after an extended rally, leaving them vulnerable to a sell-off.
The dollar widened losses against the yen to hit a two-month low.
Tech companies lead broad slide in U.S. stocks; oil rises
President Donald Trump, left, and North Korean leader Kim Jong Un during a news program at the Seoul Train Station on Thursday. Earlier on Thursday, North Korea revealed a plan to launch ballistic missiles toward a major USA military hub in the Pacific.
The Swiss franc and Japanese yen are often sought out in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses.
S&P 500 e-mini futures were down 0.2 percent, hinting at weakness on Wall Street later in the day. The dollar index slipped to a one-week low on Friday after the USA data.
"If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year", said Sireen Harajli, FX strategist at Mizuho in NY. Gold miners bucked the 1.3 per cent fall for Australia's benchmark index.
Sterling was last trading at $1.3009, up 0.27 percent on the day. We can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don't have 5-10 per cent of your assets in gold as a hedge, we'd suggest that you relook at this.
The Indonesian rupiah slipped by about 0.1 percent to its lowest in over 4 weeks. It is on track for a weekly loss of 2 percent.
Disappointing economic data releases weighed on both sides of the Atlantic today with a negative goods trade balance for the United Kingdom (-0.1% versus expectations of 1.4%), higher unemployment claims from the USA (244,000) and also a negative month-on-month PPI figure for the U.S. (-0.1%).
Gold prices and shares of mining companies jumped on Wednesday amid heightened turmoil surrounding the US and North Korea.