The euro climbed from an eight-month low on Thursday after German and French business activity beat expectations, although fears that possible tougher sanctions on Russia would hurt the euro zone were seen limiting gains.
The French composite purchasing managers index of both the manufacturing and services sector rose to 49.4 from 48.1 in June, bringing activity closer to the 50-point line dividing growth from contraction. German business activity also expanded in July as the services sector grew at the fastest rate in three years. But concerns that economic activity in Germany, which has strong trade links with Russia, could stumble in coming months as sanctions begin to bite were keeping many away from the euro.
The sanctions are likely to weigh on a fragile recovery and keep alive expectations of looser monetary policy from the European Central Bank. Euro zone interest rates were slashed in June and the ECB has left open the possibility of further monetary loosening - possibly through quantitative easing.
Versus the dollar, the euro traded below $1.35, narrowly recovering from an eight-month low of $1.3438 hit early. The euro was also slightly higher against the yen near 137 yen and rose against the pound to 79.075 pence, having slumped to a 23-month low on Wednesday.