The euro and sterling traded slightly softer versus the dollar on Thursday after the European Central Bank held interest rates unchanged while the Bank of England cut borrowing costs for the first time in two years. Both decisions were widely expected and investors were reluctant to make any big bets before Friday's key US payrolls data.
The dollar has shrugged off upbeat US data recently and investors are keen to see if Friday's data could reinforce dollar-supportive expectations that US interest rates will rise steadily this year.
"It (the ECB rate outcome) was expected to be a non-event and that has happened," Carsten Fritsch, currency strategist at Commerzbank.
"Given current market sentiment we would need very strong US data to change the sentiment again towards a stronger dollar."
Recent data have suggested that the euro zone economy may be pulling out of the doldrums, raising expectations in money markets that the ECB may raise next rates next year.
On Wednesday the euro jumped above the $1.2260 ceiling that had blocked its recovery in the past month. But after triggering stop-loss orders at $1.2350 on Thursday and rising as high as around $1.2380, the euro fell to $1.2318 by 1200 GMT.
Since hitting a 14-month low near $1.1870 a month ago, the euro has recovered more than 4 percent against the dollar but remains down about 9 percent for the year.
"Markets are steady after yesterday's (dollar) selloff. It was mostly option related but strong US data is not helping the dollar," said Lena Komileva, G7 market economist at Tullett Prebon. "Real accounts are consolidating their positions. If we get good non-farm payrolls data on Friday, it can affect the short-term long euro positions set up in recent days," she said.
The dollar was up 0.3 percent at 111.40 yen after tumbling as low as 110.76 yen during the session.
Sterling fell from Wednesday's one-month high versus the dollar before the BoE's decision and gained briefly after the rate cut announcement before paring gains again to trade at $1.7773 at 1200 GMT, slightly weaker on the day.
It was also steady from the previous day's close at 69.34 pence per euro.
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