The euro traded marginally higher against the dollar on Thursday, recovering from a sharp sell-off spurred by cautious comments made by European Central Bank President Mario Draghi after the bank left interest rates at record lows.
During an ECB news conference after the central bank left its main interest rate unchanged at a record low of 0.25 percent, Draghi said the central bank is monitoring money market conditions and hinted that there maybe downside risks to its current view on inflation.
The ECB's outlook contrasts with the U.S. Federal Reserve, which last month announced it would start paring the amount of bonds it buys each month. Relative interest rates should continue to favor the dollar over the euro.
There were some positive signals in Europe on Thursday.
German industrial output beat forecasts, while Portugal was the latest recovering economy on the euro zone's periphery to meet strong demand for a bond issue by syndication. Some 14 percent of Ireland's issue earlier this week was seen as taken up by non-euro zone investors who will have to buy euros to buy the bonds.
Market participants are now firmly focused on Friday's U.S. nonfarm payrolls report.
The number of Americans filing new claims for unemployment benefits last week fell slightly more than expected to a seasonally adjusted 330,000, pointing to an economy that was continuing to gain steam.
The U.S. central bank said last month it would begin trimming its stimulative monthly bond purchases, and minutes from the Fed's most recent meeting showed its top officials were keen to steer a delicate path and many of them stressed that future decisions were not set in stone.
Upbeat data on U.S. private sector jobs growth released on Wednesday lifted forecasts for Friday's jobs data. Analysts are looking for 196,000 jobs to have been created in December. The report may provide more clues as to how quickly the Fed will cut back on its bond-buying program this year.
Against the yen, the dollar last traded 0.1 percent lower at 104.75 yen, according to Reuters data.