LONDON: The euro strengthened on Thursday as investors cautiously welcomed Britain's draft Brexit deal with the European Union and concerns about the Italian budget stand-off eased.

Most currencies traded in tight ranges at the start of European trading, with the Australian dollar the stand out - it added more than 0.8 percent after a strong jobs report.

British Prime Minister Theresa May won the backing of her senior ministers for an EU divorce deal on Wednesday, pushing the euro and sterling up against the dollar.

The deal struck on Tuesday would allow Britain to leave the EU with a deal that avoids a chaotic departure. But EU chief negotiator Michel Barnier cautioned that the road to ensuring a smooth UK exit was still long and potentially difficult.

The euro added another 0.3 percent on Thursday, hitting $1.1352, a four-day high.

The dollar index, a gauge of the currency's performance against six peers, was flat at 96.788, off a 16-month high hit on Monday.

"The final Brexit agreement between the EU and UK has played a role in taking some of the shine off the US dollar at least in the near-term. It has helped to dampen downside risks for the European economy," said MUFG analysts in a note to clients.

U.S. inflation data on Wednesday, which indicated price growth is moderating, and some cautious comments about the economic outlook from Federal Reserve chairman Jerome Powell have also subdued the dollar.

Reports out of Italy that Prime Minister Giuseppe Conte was looking to work with the EU over his government's 2019 budget, which has been rejected by Brussels, to avert massive fines helped support Italian government bond markets and the euro.

The Australian dollar jumped more than 0.8 percent to $0.7294 after the upbeat jobs data. The New Zealand dollar also rose.

Against the Japanese yen, the dollar lost 0.1 percent to trade at 113.47. The yen had gained in the previous two sessions versus the dollar.

Adam Cole, chief currency strategist at RBC, thinks a major factor supporting dollar/yen is the emergence of a ready buyers on dips in the form of domestic Japanese investors buying unhedged U.S. bonds and taking hedges off existing holdings.

Sterling was flat at $1.2976 but down versus the euro at 87.43 pence, with most investors wary of pushing the currency higher given that May faces a tough task in persuading her Conservative Party to back her deal before it faces a parliamentary vote.