The pound, which had risen sharply in the slipstream of the dollar, had a listless day as the dollar failed to rally further. The dollar was trading at 90.45 against the yen at the London close, down from 90.85 on Wednesday.
Against the German mark, it was down almost a pfennig to DM1.39.
The plunge in the jobless claims for the last week in July came as a big surprise given that markets were expecting virtually no change. Instead they fell by by 51,000 to 321,000, the lowest since early February. The US Labor Department said the fall was the biggest for a year.
Ahead of today's employment report, the figures fuelled fears that the Fed's cut in interest rates last month will not be followed up with a further easing of policy for some time to come. The market is looking for an increase in the non-farm payroll of about 125,000.
Sentiment was not helped by a reappraisal of the prospects for big outflows of capital from Japan following Wednesday's package of measures. Analysts pointed out that Japanese institutional investors were still risk-averse following the huge currency losses they have incurred in recent years on foreign investments.
According to Mark Cliffe, international economist at HSBC Markets, "there was a much more sceptical tone in the market" about the arrival of the so-called wall of money.
In Europe, the French franc remained firm against the mark despite a bigger-than-expected cut by the Bank of France in its ceiling rate of interest.
The Bank cut the five-to-10- day lending rate from 7 to 6.50 per cent, bringing it back close to its level in early March when the bank raised it to 8 per cent to defend the franc.
Although the cut was bigger than expected - the bank last brought the rate down by 25 basis points - the franc strengthened slightly to close at 3.443.
The need for further easing of monetary policy was emphasised by the latest French unemployment figures which fell in June by 16,700 to 3,234,000.
On the new headline measure, which excludes job-seekers who worked over 78 hours last month, unemployment fell below three million for the first time since early 1993.Reuse content