The dollar on Thursday extended recent gains to a 3-1/2-week high, boosted by unexpectedly strong third-quarter U.S. economic growth and a newly hawkish tone from the Federal Reserve.
A U.S. Commerce Department report showed third-quarter gross domestic product grew by 3.5 percent versus the Reuters 3.0 percent mean forecast of economists.
The data backed up Wednesday's bullish statement on the U.S. economy by the Fed and added to buying momentum that has lifted the dollar over 8 percent on a trade-weighted basis since July.
However, the dollar's spike higher was quickly dulled as the market looked deeper into the data.
The trade-weighted U.S. dollar index, which measures the value of the greenback against a basket of currencies, rose to a 3-1/2-week high before falling to just above 86.00, a gain on the day.
Wednesday's Fed statement, which also included the end of the Fed's quantitative easing bond-buying stimulus program, focused on a U.S. economic recovery that is largely on track with improving labor markets.
Contrasted against the moribund outlook for Europe's economy, the euro fell to a 3-1/2-week low above $1.25. It has since cut those losses to $1.2600, a loss on the day.
The dollar was at 109, a rise of 0.11 percent.
Japan's central bank meets on Friday while the European Central Bank's next meeting is Nov. 6.
Concerns about disinflation in Europe grew after German annualized inflation data slowed to a 0.7 percent gain in October, the lowest reading since May.
This increases the contrast between the strengthening of the U.S. economy and the overall upward trend in market interest rates against the expectation of more monetary easing policies in Europe. Ultimately that would be negative for the euro.
On Friday, euro zone inflation data is forecast for an annual 0.4 percent reading, up from 0.3 percent in September.
The ECB has grappled with low inflation this year, lowering rates to near zero and talked the euro lower to ward off disinflation.
—By Reuters