LONDON: The euro pared losses against the dollar after upbeat data on the euro zone's private sector, with the US currency supported by Federal Reserve minutes that kept alive bets on a September tapering of monetary stimulus.
Business activity across the region picked up more than expected this month, led by Germany though France was weak, preliminary Purchasing Managers' Index data showed.
"The good German PMI figures were somewhat offset by the disappointing French numbers and this is keeping the euro low," said Antje Praefcke, senior currency strategist at Commerzbank.
"Also, the outlook that the Fed is reducing its stimulus is positive for the US dollar," she said, adding her bank was bearish on the euro and expects it to end the year at $1.27.
The euro was flat at $1.3357.
The dollar rose broadly on Thursday as it tracked gains in US Treasury yields, with the Fed minutes viewed as supportive after they little to alter expectations it could start trimming its bond purchases as early as September.
The dollar was up 0.3 percent against a basket of currencies at 81.433, not far from the one-week peak of 81.557 hit earlier in the session.
The US 10-year Treasury yield set a fresh two-year high of 2.936 percent on Thursday. Such a rise in yields can increase the attractiveness of dollar-denominated assets.
"Regardless of the fact that this is tapering, not ending QE, the shift in the focus of monetary policy is likely to support the dollar, in our view," said Marshall Gittler, head of global FX strategy at IronFX adding that markets believe "each day of tapering is a day closer to the Fed raising rates."
"Over the long term this should mean higher US real interest rates, which should support the dollar."
The dollar was up 0.8 percent against the yen at 98.43 yen.
The spread between US ten-year Treasury yields and equivalent Japanese (JGB) yields stood at highs last seen in April 2011, favouring the dollar over the yen.
The Fed's $85 billion per month worth of bond purchases helped spur inflows into emerging markets. Expectations that the central bank might soon start withdrawing some of this money have hurt emerging currencies and risk appetite.
This could increase the appeal of perceived safe-haven currencies such as the yen.
"There is the flight-to-quality type of yen buying on the one hand, but there is also dollar-buying on the back of rising US yields," said Satoshi Okagawa, senior global markets analyst for Sumitomo Mitsui Banking Corporation in Singapore.
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