NEW YORK - The dollar shaved some gains on Thursday, but remained higher on the day, after a report showed a jump in U.S. jobless claims on the eve of Friday's influential monthly U.S. jobs report.
Claims for the latest week were 364,000, above economists' expectations for 331,000. Although that appeared to signal a softer labor market than anticipated, the weekly data series is notoriously volatile, so the dollar gave up only a little ground, analysts said.
"The dollar's initial reaction was fairly muted, given the size of the negative surprise, but it is ahead of the payrolls report and also because one week's data does not make a trend," said Richard Franulovich, senior currency strategist with Westpac Banking Corporation in New York.
Monthly U.S. payrolls, for release on Friday, remains the main event the currency market is bracing for this week.
The euro (EUR=) rose to around $1.3190 according to data from around $1.3170 shortly prior to the claims report, but still down about 0.5 percent from levels late the prior session in New York.
Against the yen (JPY=) the dollar slipped to 104.71 yen, from around 104.95 yen shortly prior to the report, but was still up 0.6 percent on the global session.
Earlier, The dollar jumped one percent against the yen and hit a four-week high against the euro, extending its recent recovery on expectations U.S. interest rates would continue to rise.
The market is waiting for the U.S. non-farm payrolls figures due on Friday to see if the dollar will extend the rally which it started 2005 or resume a three-year downtrend driven by concerns about the U.S. current account and budget deficits.
A clearly stronger than expected December US jobs report could lend the dollar fleeting support, if it reinforces existing expectations for Fed rate increases. A weaker than expected report would likely put the dollar under immediate pressure.
Economists polled by forecast that 175,000 jobs were likely created in December, up from November's disappointing 112,000 gain.
The dollar's new year rally has been fueled by the minutes from the Federal Reserve's latest meeting on Tuesday that signaled the U.S. central bank will likely continue steadily hiking rates.
The dollar receives support from higher rates as these increase the attraction of short-dated dollar denominated deposits to foreign investors, but the currency is still prone to decline because of the heavy weight of the U.S. current account deficit.
European data has been largely disappointing.
On Thursday, French consumer confidence fell unexpectedly in December to its lowest level in a year, euro zone economic sentiment fell for the second month running in December and euro zone producer prices also fell in November.
Japan's top financial diplomat, Hiroshi Watanabe, said recent movements in the currency markets were "rather wild" and authorities were ready to take action as needed. The dollar has risen nearly two yen since the start of the year.