The dollar rallied on Thursday, as investors pared recently overextended bets against the currency, helped modestly by US economic data that were not as bad as markets had feared.
A key regional business survey for April - the Philadelphia Fed's index of business conditions - showed an improvement in factory activity, although it came in lower than expected.
US initial jobless claims, meanwhile, showed a weekly drop and that initially encouraged investors, who may have thought the euro's 2-percent advance through Wednesday as overdone, to sell the euro-zone currency.
"The US dollar has rallied because it has taken quite a beating this past week," said Kathy Lien, chief fundamental analyst at Forex Capital Markets in New York.
"It rallied even we though we had pretty subdued numbers. This tells us that the Federal Reserve isn't going to be in a rush to raise interest rates aggressively and more likely the dollar will likely continue its downward spiral next week," she added.
In late afternoon trading, the euro fell 0.6 percent to $1.2311 from a seven-month high of $1.2394 touched on Wednesday.
With no real major US data expected until next week, Ron Simpson, director of currency analysis at Action Economics in Dobbs Ferry, New York, said he expects euro/dollar to stick to a fairly tight $1.2270-$1.2350 range over the next 24 hours.
But the market is in such a mode that it will use any excuse to sell the dollar, Simpson added.
The dollar has slipped against the euro this week after the Fed signalled its nearly two-year-long campaign of raising short-term rates may be nearing its end.
The euro also fell 0.3 percent against the yen to 144.70 yen. The euro-zone currency earlier touched 145.49 yen, its highest since the euro was launched in January 1999.
Against the yen, the dollar inched up 0.3 percent to 117.51 yen. Low borrowing costs in Japan have kept the yen under pressure, analysts said.
Sterling fell 0.8 percent against the dollar to $1.7787 after weaker-than-expected UK inflation figures. The liquidation of bets against the dollar built up this week was mirrored by the massive selling in commodity markets on Thursday.
Also on Thursday, Chinese President Hu Jintao said in Washington that Beijing will continue reforms of the Chinese currency's exchange rate - a contentious issue in US-China bilateral trade relations. But traders said Hu's comments had little immediate impact on currency trading.
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