The dollar was little changed against the euro on Thursday, as investors squared positions ahead of a U.S. payrolls report that markets hope will offer fresh insight on the state of the U.S. economy.

Strong German industrial data and signs that Spain and Greece were making progress in trimming budget deficits earlier lifted the euro, as did data showing U.S. initial jobless claims unexpectedly rose in the latest week.

But after selling the dollar aggressively earlier this week, investors were unwinding some bets against it Thursday in case Friday's data shows a surprisingly strong jobs gain.

Analysts polled by Reuters expect the United States lost 65,000 jobs in July but added 90,000 in the private sector. An independent report from ADP Employment Services earlier this week said the private sector added 43,000 jobs in July.

Trading has been very choppy, which is typical on the day before U.S. payrolls, and after the ADP number, a lot of people are revising up their forecasts for tomorrow, said Steven Butler, head of currency trading at Scotia Capital in Toronto.

The euro was flat at $1.3150. Earlier it rose to $1.3234 after data showed a surprise 19,000 rise in the number of Americans filing for initial jobless benefits last week.

A strong debt auction in Spain and a vote of confidence from the International Monetary fund in Greece's efforts to cut the deficit also boosted euro buying during European trade.

Both countries were at the forefront of a euro zone debt crisis that drove the currency below $1.19 in June, its worst showing since 2006

The dollar fell 0.5 percent to 85.85 yen, just over a yen off a 15-year low, while sterling slipped 0.2 percent to $1.5847 after hitting a six-month high above $1.59 this week.


Recent signs of slower U.S. growth have hobbled the dollar; since July, it has lost about 6 percent against a basket of major currencies. It fell this week along with short-dated U.S. Treasury yields amid speculation the Federal Reserve could revive Treasury and mortgage bond purchase to boost growth.

But Butler said it appears traders overreacted, adding that the Fed has been pretty clear that it's done acting for now.

Added Brian Dolan, chief strategist at in Bedminster, New Jersey: the market increasingly thinks the Fed probably won't do anything drastic after all, because while the U.S. data has been weak, it's not dire enough to panic.

If Friday's payroll data meets or exceeds expectations, he said the dollar will likely rally to cap off the week.

Butler said if the euro closes below the $1.3125 area, which marks the 38.2 percent retracement of the euro's November-to-June decline, you'll see anyone who bought short-term Treasuries looking for the exit, and that means the euro heads back toward $1.30 and sterling toward $1.55.

Currency strategists at Standard Chartered said in a note to clients Thursday that investors should use current dollar weakness to renew underweight positions in European currencies such as the euro and sterling, noting that September debt rollovers and the start of Britain's fiscal tightening will hurt those two currencies.

(Additional reporting by Nick Olivari in New York; editing by Paul Simao)