The euro edged up against the dollar on Thursday but remained vulnerable near a recent 14-month low on concerns about the risk of a sovereign debt crisis in the euro zone and the impact of fiscal measures on the region's growth.
Gains in the euro are likely to be limited as investors are expected to use any rallies as an opportunity to sell it, traders said, and it hovered near a recent record low against the Swiss franc set at 1.4005 francs.
The Australian dollar nudged higher after data showed the domestic economy added 33,700 jobs in April, handily beating forecasts for a 20,000 rise.
"Financial markets overall have been returning to calm but the euro remains on a downtrend," said Kosuke Hanao, head of treasury product sales at HSBC in Japan.
"Although the panic sell-off in the euro has eased at the moment, the downside risk still remains."
The euro edged up 0.4 percent from late U.S. trade on Wednesday to $1.2658 but remained within sight of its 14-month low near $1.25 hit last week. Near-term psychological support for the euro is seen at that level but some in the market see the currency falling below $1.2400 as it did in 2008.
Traders cited market talk of decent bids in the euro at $1.2610/20 and also ahead of an option barrier at $1.2600.
Against the yen, the euro rose 0.3 percent to 117.97 yen, having fallen to a eight-year low of 110.49 yen on trading platform EBS last week.
In the week to May 8, Japanese investors dumped a net 1.57 trillion ($16.8 billion) of overseas bonds, the heaviest net selling since 2.11 trillion from the week to April 4 last year, data from Japan's finance ministry showed.
The figure came despite the fact that there were only two trading days last week due to Japan's "Golden week" holidays and the move may have contributed to the yen's sharp appreciation last week, although it may not have been the main driver.
A market source said the massive selling of foreign bonds by Japanese investors last week was led by the banking sector, which trimmed positions in medium-term to long-term foreign bonds.
Since Japanese investors were net buyers of foreign stocks last week, the selling of foreign bonds may not be a simple case of fund repatriation, the source added.
Japanese banks often invest in foreign bonds in a manner that does not involve taking on foreign exchange risk, and any unwinding of such positions would not have a direct impact on currency moves.
Although the euro drew support from Spain's spending cuts and a successful bond sale in Portugal on Wednesday, worries about euro zone economic growth continued to weigh on the currency.
"The next question will be how debt-stricken nations in the euro zone can manage to cut their fiscal deficits," said Jun Kato, senior manager of investment at Shinkin Asset Management.
"People are still looking at Europe now but fundamentals generally are expected to return as a trading factor, given relatively good economic numbers in the U.S. and steady stock markets."
Firm stocks and the Aussie's moderate rise after the data helped investor sentiment slightly, traders said.
The Australian dollar advanced 0.6 percent to $0.9000. It also rose 0.6 percent to 83.83 yen.
Sterling climbed 0.2 percent to $1.4855, trimming some of its losses from the previous day, when it fell 0.7 percent, hurt by the Bank of England's dovish outlook for UK growth and inflation in its quarterly inflation report.
The euro was little changed near 85.24 pence.
The dollar edged down 0.1 percent to 93.18 yen. A trader for a Japanese bank cited Japanese exporters offers at levels above 93.00 yen.
