Dollar weakens on euro zone inflation data

Meanwhile, inflation in the euro zone hit its highest level since the European Union began keeping records, pointing to a possible rise in interest rates there. Higher rates can draw investors to a currency as they park capital where it earns more interest.

The 15-nation euro bought $1.5593 in late New York trading, up from the $1.5574 it bought the night before. The British pound rose to $1.9829 from $1.9814, and the dollar fell to 107.90 Japanese yen from 108.10 yen.

The Commerce Department also reported that gross domestic product increased at an annual rate of 1.9 percent in the April-to-June period. The second-quarter rebound wasn't as robust as economists had hoped; they were forecasting growth at a 2.4 percent pace.

The rebound isn't likely to be seen as a signal that the economy is healthy again. The Labor Department reported Thursday that new claims filed for unemployment insurance jumped to 448,000 last week, the highest in five years.

Continuing jobless claims rose by 185,000 to nearly 3.3 million, the biggest increase in 10 years, according to Ashraf Laidi, a currency strategist at CMC Markets.

"These reports are a reminder that the dollar's fundamental woes are not limited to banking write-downs and high oil prices, but also a manifestation of weak macroeconomic data, at the top of which is continued deterioration in the job market," Laidi wrote in a research note.

Meanwhile, Eurostat reported that inflation in the euro zone reached 4.1 percent in July, the highest point since record-keeping began in 1996.

Soaring fuel and food prices are Europe's biggest economic problem, curbing spending and limiting growth as consumers steer clear of major purchases and luxury goods.

Accelerating prices and signs that growth is stalling are also a major dilemma for the European Central Bank, which acted last month to cool inflation by raising borrowing costs for the first time in a year to 4.25 percent. But the bank, which meets next week, may have to hold back on more increases as European economic growth slows.