The greenback took a beating after a surprisingly sharp retreat in the ISM index of manufacturing to 52.8 and downgrades of the U.S. inflation outlook prompted investors to sell the U.S. currency and push Treasury yields lower.

But that changed when Fed Chair Jerome Powell said the factors dragging on inflation might be "transitory" and he saw no case for a rate move in either direction.

As a result, the dollar was half a percent above overnight lows against a basket of its rivals while 10-year Treasury yields was seven basis points above overnight lows.

"Powell is seeing the glass half full," said Konstantinos Anthis, Dubai-based head of research at ADSS.

"What's more important though is that he made it clear that he sees no case for easing interest rates, which of course will not make President Trump happy at all."

Still, interest rate futures markets are pricing in a 64 percent probability of a rate cut by the end of the year though that probability might change after monthly jobs data due on Friday and U.S. inflation data next week.

The euro was back at $1.1198, after reaching as high as $1.1265 overnight, while the dollar steadied at 111.55 yen from a low of 111.03.

Sterling was broadly steady after hitting a two-week high on Wednesday on speculation that Brexit talks between the British government and the main opposition party were making some progress. GBP/

The pound was last at $1.3054, having been as high as $1.3101 overnight ahead of a Bank of England rate decision where the central bank is widely expected to hold fire but its comments might shift future rate expectations.