The euro was pinned near three-week highs on Friday, on track for its second successive week of gains, while the dollar appeared vulnerable to further losses after falling below a key chart level.
The dollar slipped after a slew of disappointing U.S. economic data, which helped push U.S. Treasury yields to their lowest in a week.
The euro held gains near $1.24 as investors shed short positions after solid demand for Spanish government bond auctions on Thursday eased concerns about Spain's debt-servicing abilities, boosting sentiment for riskier assets.
Financial system concerns have eased, and some players are re-establishing carry trades, seeking higher-yielding assets, said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi UFJ.
The Swiss franc was also firm after Switzerland's central bank on Thursday backed away from its pledge to fight excessive currency strength now that deflation risks have receded.
The euro slid to a record low against the franc at 1.3730 franc while the dollar hovered near a one-month low of 1.1095 franc.
The euro's rebound against the dollar has seen it gain more than 2 percent so far this week, pulling further away from a four-year low of $1.1875 struck on June 7.
On Friday, it rose as far as $1.2417 on trading platform EBS. By 1026 GMT, it was flat on the day at $1.2374.
The euro remains upside corrective and on track to test the $1.2445 2009 low and inter-year pivot, technical analysts at Commerzbank said.
This, together with the 38.2 percent retracement of the move down from April represents our initial corrective target.
Traders said options with a strike price at $1.2400 were set to expire later in the day. Option barriers were lurking around $1.2450, capping the upside, they added.
But many analysts see the euro's rebound waning.
Flows data suggest the current rebound is not backed by real money investment flows (private or official), implying gains are likely to be short-lived, BNP analysts said. They see the corrective rebound running out of steam at around $1.2525.
European leaders agreed on Thursday to publish details of stress tests showing the financial health of big banks next month and to toughen budget rules to restore confidence in the euro zone.
Some in the market said the release of stress tests would boost investor trust in European banks but others were concerned they could reveal fragility in the sector and hurt the euro.
The dollar took a hit after a rise in jobless claims, weaker-than-expected manufacturing data and a big drop in consumer prices on Thursday prompted investors to scale back expectations of a U.S. Federal Reserve interest rate hike.
The dollar index .DXY was flat at 85.694, after falling to a one-month low at 85.491. Technically, it looked vulnerable after it broke through support at 85.85, with the next key level seen in the 85.13 area, its May 21 low.
Sterling hit a one-month high against the dollar.
The dollar dipped to a three-week low against the yen at 90.47 yen. It was last at 90.53 yen, down 0.4 percent on the day.