The euro jumped to a three-week high against the dollar on Friday after a report that the European Central Bank had discussed the possibility of raising interest rates before the end of its quantitative easing program.
Sources told Reuters some ECB policymakers had suggested hiking rates from their current record lows before the end of QE stimulus, but that the discussion was brief, and there was not broad support for the idea.
The euro rose as high as $1.0677 EUR= against the dollar, its strongest since Feb. 16. It was last at $1.0666, up 0.85 percent.
"I have no idea whether the reports are correct or not but it shows where we are," said Axel Merk, president and portfolio manager at Merk Hard Currency Fund in Palo Alto, California.
"It shows that the discussions (at the ECB) are leaning towards, 'How do we get out of QE?' ... There's been a fundamental shift, but it’s a fundamental shift that’s been gradually sinking in."
Merk also noted that improving euro zone economic data has supported the premise that inflation and growth may be returning, which ECB President Mario Draghi highlighted in his remarks on Wednesday following the central bank's March meeting.
The dollar index .DXY, which tracks the greenback against six major world currencies, fell to a session low of 101.380 following the report on the ECB discussions.
The index had sunk earlier after the release of the February U.S. non-farm payrolls report that showed wages rose less than expected. That tempered expectations for a spate of interest rate increases this year by the Federal Reserve.
The U.S. payrolls report showed employers added 235,000 jobs last month, beating expectations of 190,000.
“It’s a very solid report; however, the dollar has failed to appreciate given how market expectations were sky-high for a robust report," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"Once again the wage number continues to overshadow," he added, "and with wages rising in lackluster fashion, that has tempered expectations for the Fed to raise rates at a faster pace this year."
Fed fund futures prices showed investors see a 93 percent chance of an increase in U.S. overnight interest rates this month, according to CME Group's FedWatch tool. But that number was close to 90 percent before the data was released.
The greenback was little changed against the yen JPY= after touching a seven-week high of 115.50 yen. The dollar last traded at 114.83 yen.
(Reporting by Dion Rabouin and Gertrude Chavez-Dreyfuss; Editing by Dan Grebler)