The euro gained slightly on Thursday after data showing German unemployment falling more than expected pointed to continued strength in the euro zone's largest economy, while end-of-quarter investor rebalancing limited broader currency moves. The single currency had been on the back foot earlier in the day as the dollar showed some strength, but the German data helped the euro recover. It traded 0.1 percent up at $1.2318 against the dollar but its gains were tempered by German inflation figures easing a slight slowdown in price rises.
"The political risk has come out of the euro in the last two weeks so data is the story right now," said Jeremy Cook, head of FX strategy at WorldFirst. The euro has been weighed down recently by comments from some European Central Bank officials suggesting the ECB is in no hurry to wind back its stimulus, given the spectre of low inflation.
The dollar meanwhile fell slightly by 0.1 percent to 89.954 against a basket of major currencies. Investors took profits after a hefty rise in the previous session, with traders remaining bearish about the outlook for a currency headed for its fourth consecutive quarter of losses. Global markets were shaken this month when US President Donald Trump moved to impose tariffs on Chinese goods and Beijing threatened similar measures. But fears of a full-blown trade war have eased on hopes negotiations can bring a compromise. Quarter-end and month-end flows have boosted the dollar in recent days as global asset and fund managers rebalanced portfolios. Data showing fourth-quarter US economic growth slowed less than estimated also supported the greenback.
Analysts said this week's jump for the dollar looked overdone, however, and that many of the structural reasons for the US currency's decline - trade and budget deficits and monetary tightening in other parts of the world - remained.
"Is US protectionism good or bad? The market is very undecided about this, but the dollar's bounce was a little bit too bold from the market's perspective," said Ulrich Leuchtmann, head of FX strategy at Commerzbank.
Elsewhere, the Chinese yuan moved up again, rising 0.1 percent to 6.2862 yuan per dollar and putting it on track for its best quarterly performance since 2008. The Chinese currency has risen about 3.4 percent so far this year, and some analysts predict that trade relations with the United States will limit China's ability to weaken its currency.
The dollar also eased against the yen, losing some momentum after hopes of detente in East Asia provided the spark for its largest daily gain in six months the previous session. The dollar fell 0.3 percent to 106.52 yen, giving back some gains after surging 1.43 percent on Wednesday, its biggest rise since September 11 of last year.
Because of Japan's status as a net creditor nation, the yen tends to be bought on rising geopolitical tensions and vice versa. Some traders also noted, however, that currency trading so far this week has been driven by flows related to quarter-end, and for many Japanese firms, the financial year end, on March 31.