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Dollar rallies against euro as traders revisit bullish bets

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The U.S. dollar was on track for its biggest one-day gain against the euro in a week on Thursday after traders reestablished bullish bets on the dollar following recent weakness in the currency.

Analysts said traders stepped in to repurchase the greenback after the euro hit $1.10525 earlier in the session, its highest since it hit a nearly two-week high of $1.10625 on March 18 following the U.S. Federal Reserve's latest policy statement.

Investors "have been looking for better levels to establish their dollar longs," said Aroop Chatterjee, currency strategist at Barclays in New York. "This is probably a good level to do that."

The greenback has given back some gains in the wake of the dovish Fed statement after rallying about 25 percent against a basket of major currencies from early May through March 17. The rally was largely on the view that the Fed could hike interest rates early as June.

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Analysts said the euro remained on a downtrend while the dollar remained on an uptrend given the divergence between the European Central Bank's bond-buying stimulus plan and the Fed's inclination toward tightening policy.

Better-than-expected U.S. economic data on weekly jobless claims and March services sector growth bolstered confidence in the dollar, analysts said.

The dollar was down modestly against the yen, however, after Saudi Arabia and its allies in the Middle East launched air strikes against Iran-allied forces in Yemen, which sits on a key shipping passage between Europe and the Arab Gulf. The news dampened risk sentiment and boosted the safe-haven yen.

"As long as you have that residual geopolitical risk in the Middle East, that's going to provide some bid to the Japanese yen," said Ian Gordon, FX strategist at Bank of America Merrill Lynch in New York.

The euro was last down nearly 0.8 percent against the dollar at $1.08845 and was set for its biggest daily loss against the greenback since March 19.

The dollar was last down 0.29 percent against the yen at 119.18 yen, after having earlier hit a nearly five-week low of 118.330 yen. The dollar was up 0.3 percent against the Swiss franc at 0.96295 franc after having earlier hit a nearly one-month low of 0.94910 franc.