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Surprisingly weak first quarter economic growth numbers from Germany and France sent the euro to a six-week low against the dollar on Wednesday, boosting the chance of another interest rate cut.
European Central Bank president Mario Draghi said earlier this month he would cut rates further if the growth outlook worsened.
"(Draghi is) trying to be transparent and tell the market that any sort of weak data would give them (the ECB) scope to cut again, and certainly that's the way the market is trading," said Greg Matwejev, director of FX Hedge Fund Sales and Trading at Newedge.
The dollar extended its gains against a range of currencies, hitting a 4-1/2 year high of 102.58 yen and a six-week peak against sterling, as signs of solid U.S. economic strength and low inflation encourage demand.
Share markets showed resilience after the European growth figures. The FTSEurofirst 300 index of blue chip shares, which closed at a five-year high on Tuesday, was virtually unchanged on Wednesday, as was Germany's DAX index, which shed modest early gains.
"(Equity investors) are buying for the medium term, betting that things will improve on the macro front around September... Investors are buying every dip," said David Thebault, head of quantitative sales trading at Global Equities.
In the debt markets Italian government bond yields rose as investors sold debt to make room for the expected sale of a new 30-year bond, designed to tap into strong demand from investors for high yielding securities.
