The euro slid to a four-week low against the dollar on Thursday, fuelling exporter-led gains in European shares, as investors weighed up the potential for a positive surprise in Friday's U.S. nonfarm payrolls.
The firmer dollar kept the pressure on dollar-denominated metals markets, while U.S. crude prices hovered near $43 a barrel after data on Wednesday showed a big buildup in U.S. heating fuel inventories.
Weekly U.S. jobless claims surged unexpectedly to their highest level since September, at 364,000, giving government bonds a gentle leg-up.
But that failed to move other markets ahead of Friday's main event, which could set the tone for markets as investors balance the threat of higher U.S. interest rates with the promise of sustained growth in the world's biggest economy.
The jobless claims data was also tainted by difficulties in adjusting for seasonal factors, economists said, while the euro's slide helped to keep euro zone debt gains in check. The consensus is for a nonfarm payrolls addition of 175,000, following November's disappointing 112,000 rise. Some investors were betting on a bigger number by buying the dollar after recent hawkish minutes from the Federal Reserve.
But any positive dollar impact from Friday's data could be short-lived, with the focus in foreign exchange markets increasingly on trade and investment flow trends, currency strategists say.
"Systematic accounts continue to buy U.S. dollars but like other macro-driven investors we are not convinced that this is the start of a sustained rebound in the US dollar," RBC Capital Markets' Monica Fan said, while recognising the potential for near-term gains.
She cited an in-house study that showed the dollar on average posting a 1 percent daily gain against the euro for every 100,000 surprise in non-farm payrolls.
The euro traded at around $1.3185, having last week hit an all-time high of $1.3667, and the dollar changed hands at around 104.7 yen.
The FTSEurofirst 300 index of leading European shares rose 0.45 percent, back towards recent 2-1/2 year highs after a mixed performance by Asian stock markets. Wall Street was also seen opening higher after a weak close.
Gold prices eased but held above Tuesday's two-month trough of $423.55 per troy ounce at around $425.30.
Gold has lost nearly seven percent since hitting a 16-1/2-year high at $456.75 an ounce in December, hurt by a rebound in the U.S. dollar that triggered fund liquidation.
The London Metal Exchange's flagship futures contract -- three months copper -- was also close to multi-week lows.
In Tokyo, the Nikkei average rose 0.48 percent as gains in shipping and engineering stocks offset losses in semiconductor-related firms like NEC Corp.that were hurt by a sales outlook cut from U.S. peer Xilinx Inc.
Other Asian indexes were mixed, although shares in Thailand and Indonesia rose as the focus shifted to domestic earnings and pledges of tsunami-related aid and debt relief continued to rise.