The euro fell to a six-week low against a buoyant dollar on Wednesday, hurt by an unexpectedly large contraction of the euro zone economy which bolstered the case for more monetary easing by the European Central Bank.
In contrast, the U.S. is showing signs of a recovery, underpinning expectations that the Federal Reserve may wind down its asset purchases program by the end of the year. That has pushed up U.S. bond yields and driven the dollar to a 4 1/2-year high against the yen.
The euro was last down 0.3 percent against the dollar under $1.2881, with exporter bids cited around $1.2880. Many investors are looking for the single currency to bounce towards $1.2900 before initiating fresh bets against it, expecting it to then fall towards $1.2740, traders said.
"This (data) will put pressure on the ECB to act. And if U.S. yields stay supported and data there keeps improving, we could see the euro target the $1.2740 area," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
European Central Bank officials have said they could ease monetary policy further, and perhaps even take the deposit rate, the level at which banks park their surplus cash with the central bank, below zero, if the economy slowed.