"Risk-on sentiment amid a global stock rally worked in favor of the euro and commodity rivals like the loonie, Aussie and kiwi dollars, while rising Treasury yields have pulled the greenback out of its biggest hole in weeks," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Friday's slew of weaker-than expected US economic data weighed on the dollar initially, especially the manufacturing index, but the greenback rallied to trade higher on the day.
In late morning trading, the dollar index rose 0.2 percent to 96.307.
The dollar was earlier supported by data on Thursday showing US gross domestic product had grown at an annual 2.6 percent rate in the fourth quarter, exceeding forecasts for a 2.3 percent gain. Benchmark 10-year US Treasury yields have risen about 7 basis points this week. The yield surged to 2.731 percent on Thursday, its highest since Feb. 6.
The dollar was up 0.5 percent at 111.93 yen after hitting a 10-week high.
Sterling was down at 0.3 percent at $1.3219.
The euro, meanwhile, was little changed against the dollar at $1.1377. It traded flat in London after data showed underlying inflation in the euro zone remained subdued.
The euro zone single currency rose earlier after news that a US manufacturing index had fallen in February to its lowest since November 2016 suggested economic momentum has slowed this year.
The Institute for Supply Management's US manufacturing index fell to 54.2 in February from 56.6 the previous month. The prices paid index, a measure of inflation, also fell, to 49.4, the weakest since February 2016.
Other economic data were also soft, with a weaker-than-expected University of Michigan consumer sentiment index for February as well as a drop in both US personal income and spending. These reports underscore expectations for weaker growth momentum in the first quarter.
"All of these things are putting a damper on the dollar. The market was looking for a stronger recovery after the shutdown," said Joe Trevisani, senior analyst, at FXstreet.com in New York.
"They're saying that the shutdown is transitory and wouldn't have that much of an impact. But looking at these numbers, that's not the story they're telling. It's not a big collapse, but it's not as strong as people thought," he added, referring to the 35-day partial US government shutdown that ended Jan. 25.
Earlier data showing a drop in both US personal income and spending had little impact on the dollar. A key inflation gauge in that report showed the headline rate falling to 1.7 percent from 1.8 percent, with core inflation at 1.9 percent in December, just below the Fed's 2 percent target.