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LONDON: Improved European economic data boosted risk appetite on Wednesday, while the euro slipped and the dollar index rose slightly as markets balanced hopes for a global economic recovery with surging COVID-19 infections in the United States.

With transmission rates of the coronavirus falling in much of Europe, and economies opening up, IHS Markit's final euro zone Manufacturing Purchasing Managers' Index (PMI) moved closer to the 50-mark separating growth from contraction in June.

Germany's manufacturing sector also contracted at a slower pace as Europe's largest economy lifted restrictions.

"What the market is now focusing on is how this recovery is panning out," said Commerzbank FX strategist Thu Lan Nguyen. "The market is pricing in a relatively quick recovery and now we need some proof of that."

The euro fell 0.2% versus the dollar to $1.12105 at 1018 GMT , as currency markets moved sideways after a rally in which the euro gained 6% against the dollar in May and early June.

The dollar was at 97.442 against a basket of currencies , having fallen overnight but strengthened in early London trading.

Although the dollar has acted as a haven currency for much of the coronavirus crisis, U.S. fundamentals have played a bigger role recently, meaning it can appreciate on better-than-expected data.

U.S. manufacturing data for June, due later on Wednesday, is expected to show a rebound in activity.

"If the data today from the U.S. would disappoint then you might have the indication that maybe the eurozone is faring better, the recovery might be quicker than in the U.S. - I think that's what's crucial now," said Commerzbank's Thu Lan Nguyen.

ING strategists wrote in a note to clients that euro-dollar should stay around 1.1200 today.

Investors have been betting that the surge in new infections in the U.S. south and southwest will not derail a broader global economic recovery.

But the United States had its biggest spike in new COVID-19 cases on Tuesday since the start of the pandemic and the government's top infectious disease expert said that number could soon double.

The European Union has excluded the United States from its initial "safe list" of countries from which the bloc will allow non-essential travel from Wednesday.

Australia was also starting a localised lockdown of more than 300,000 people in the suburbs north of Melbourne in Australia after two weeks of double-digit rises in new coronavirus cases in the country's second most populous state.

The Japanese yen rose around 0.4% versus the dollar, to 107.635, its first session of significant gains in more than a week.

The riskier New Zealand dollar fell in overnight trading before recovering in early London trading, and was up 0.2% on the day at 0.2%.

The Swedish crown was broadly flat against the euro after the Riksbank kept rates unchanged 0%.

After an increase in March, the crown recovered to its pre-coronavirus levels at the start of May and has been broadly stable since. Versus the euro, it was at 10.4745 on Wednesday, down around 0.1% on the day.

"We don't see today's decision as a game changer for Sweden's krona, and so far the impact on the currency has been fairly limited," ING economist James Smith and strategist Petr Krpata wrote in a note to clients. "We therefore look for EUR/SEK to move towards 10.00 by the year end."

The Norwegian crown gained versus the dollar and euro as oil prices rose.

Against the euro, it reached a 12-day high of 10.7010 before easing to 10.7255 at 1038 GMT, still up around 0.8% on the day .