Many analysts predicted European Central Bank rates would rise beyond an expected hike to 3.75 percent in March.

The euro rose to 1.3170 dollars at 2200 GMT, from 1.3142 late in New York on Thursday. The single currency stood at 159.35 yen, down from 159.55.

The dollar fell to 120.98 yen, from 121.56 yen on Thursday.

The euro dipped earlier in the day after Germany's key Ifo business confidence index showed a bigger-than-expected fall to 107.0 points in February, from 107.9 in January.

But it soon recovered as markets concluded that the data remained consistent with robust growth in the eurozone's largest economy.

Also, business confidence surveys out of France, Italy and Belgium on Thursday were all well above forecasts, while French household consumption data on Friday were also strong.

"The news out of the eurozone is still positive and the ECB is not done with hiking rates," said Marios Maratheftis, a currency analyst at Standard Chartered.

The ECB next meets on March 8, when borrowing costs are widely expected to rise to 3.75 percent. Many pundits forecast another quarter-point rise in June as well.

Maratheftis said the rate outlook in the eurozone contrasted with the situation in the United States, where he said data point to the Federal Reserve leaving interest rates on hold.

"There was some overreaction in the dollar rebounding earlier this week" following Wednesday's stronger-than-expected US consumer price index, he said.

The yen recovered some ground after taking a hammering this week against the dollar and euro. Selling had intensified despite the Bank of Japan's decision on Wednesday to double its benchmark lending rate to 0.5 percent.