The euro is higher versus the dollar Thursday afternoon as U.S. stocks climb into positive territory.

Higher stocks encourage position taking out of the dollar, a major funding currency. The Dow Jones Industrial Average was recently up about 28 points on the day.

The euro had already recovered earlier from a one-week low against the U.S. unit, $1.4070, after the market got past the day’s key economic events.

It was sold off on a broad rebound in the buck from a 2009 low, as traders took profits on the recent rally in riskier assets and with a return of some caution. A sharp dip also came on rumors, since denied, that U.K. Prime Minister Gordon Brown would resign.

However, overall, currencies are trading inside a very narrow range ahead of the much awaited May U.S. payrolls report to be released Friday.

Thursday afternoon in New York, the euro was at $1.4174 from $1.4145 late Wednesday. The dollar was at Y96.48 from Y95.97, according to EBS. The euro was at Y136.75 from Y135.73, and the U.K. pound was at $1.6136 from $1.6283. The dollar was at CHF1.0692 from CHF1.0715 Wednesday.

Mixed signals in remarks by European Central Bank President Jean Claude Trichet, after the bank left interest rates unchanged at 1.0%, had little impact on the common currency.

Trichet stressed that euro zone policy makers are already thinking about exit strategies from easing mode. He also said that the ECB isn’t considering expanding its EUR60 billion covered bond purchase program, or any other non-standard easing measures.

This helped to boost the euro against the U.S. unit, as the Federal Reserve is seen as possibly expanding its Treasury purchases.

However, Trichet was very cautious on the euro zone’s growth outlook. He also spoke on the importance of a strong dollar policy in the U.S. in response to a question on the euro’s three-month rally.

The Bank of England also voted to keep rates unchanged Thursday, as expected.

Elsewhere, emerging markets in Europe were shaky Thursday. Assets continued to feel the fallout from Latvia’s escalating financial crisis, particularly the Hungarian forint and Polish zloty.

Signs that Latvia’s economic woes are worsening have prompted speculation that authorities could be preparing to drop their currency’s peg to the euro, despite repeated official denials.

The Latvian central bank Thursday said it will maintain the stability of the national currency until the euro can be adopted.

A European Commission spokesman said earlier Thursday that European Union and International Monetary Fund officials are currently in Latvia “assessing the situation.”

Bank-lending rates in Latvia rose to record highs Thursday, a new sign of a growing liquidity shortage.

Swedish banks, which are heavily exposed in the Baltic region, saw their stock prices recover heavy losses Thursday after the Swedish government pledged support to any Swedish banks running into trouble. But the Swedish krona remains near the low end of its recent trading ranges against the dollar and euro after falling sharply Wednesday.

The recent commodity rally comes down to two factors: a weaker dollar and hopes of an economic rebound, Morgan Stanley says. “If one sees green shoots, one should be long commodities. If one sees future inflationary pressures resulting from excessive fiscal and monetary activism, one should be long commodities. If one sees weakening confidence in the US dollar and the difficulty of US policymakers to sufficiently stimulate the economy without further risk to the dollar, one should be long commodities,” the bank’s commodity researchers say. No surprise that they conclude a slowing in the greenback’s decline is the “biggest near-term risk to commodity prices.”

Recent economic data are fitting into either the good or
great category, says Societe Generale’s Patrick Bennett; “there are no bad
numbers. Risk appetite is once again in the ascendant as investors are cheered by data and the translation to equity market gains – anyone for a bubble?” Are a number of key data prints to come this week, including U.S. payrolls Friday; USD remains under broad pressure and JPY is underperforming, while AUD has been top G10 performer in last 24 hours, putting on some more ground following solid 1Q GDP. “A fair question to ask might be what were the RBA thinking yesterday?
There have been some suggestions that the recent strength in the Australian
dollar may have played a role in their cautionary tone – if so they must be
none too pleased today.” USD/Asians finding some support though on intervention by central banks in region to provide local currency liquidity.