The euro rose to a three-week high against the U.S. dollar on Thursday as some traders shut down broad bets against the common currency ahead of the first round of the French presidential elections on Sunday.
The dollar remained weak against a basket of major currencies as the latest data on domestic jobless claims and business activity in the mid-Atlantic region did not change traders' views of modest U.S. economic growth and low inflation.
Traders were taking their cues from polls showing French centrist Emmanuel Macron easily beating far-right candidate Marine Le Pen in the second round two weeks later, analysts said.
"Markets are banking on (Macron's) ability to drive the country out of its misery," said Naeem Aslam, chief market analyst for Think Markets in London.
Pollsters forecast the most likely outcome of the first round is that Macron will go head-to-head against Le Pen in the May 7 second round.
"We saw French yields come down a little bit," said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York. "I think it is signaling some comfort regarding the upcoming election."
The euro was up 0.39 percent against the dollar at $1.0751 after hitting a three-week high of $1.0777 earlier in the session.
Harajli, however, warned that the outcome of the race was still uncertain.
The dollar index, which tracks the greenback against a basket of six major rivals, has fallen in recent weeks on weaker-than-expected economic data and worries about the Trump administration's ability to get tax and fiscal legislation passed.
"It seems markets are expecting a slower pace of policymaking this year, compared to what had been expected earlier in the year," Harajli said.
The greenback was also pressured this week by a resurgent sterling after British Prime Minister Theresa May called an early general election ahead of Brexit negotiations. Sterling was up 0.29 percent at $1.2824.
The dollar index was down 0.08 percent at 99.82 after hitting a more than three-week low of 99.374 earlier in the session.
Meanwhile, commodity currencies, including the Aussie and the New Zealand dollars recovered ground against the greenback. Canada's dollar steadied after falling on Wednesday amid weakness in commodity markets.
Oil prices were largely flat on Thursday after steep losses the previous session, with rising U.S. production weighing against comments from leading Gulf oil producers that an extension to supply cuts led by the Organization of Petroleum Exporting Countries was likely.