The dollar rose against the euro and the yen on Thursday with investors focused on whether U.S. economic data will support the case for the Federal Reserve gradually scaling back its bond-buying stimulus this year.

The euro - the strongest-performing major currency in 2013 but historically a weaker performer at the start of a calendar year - dropped 0.6 percent to $1.3665.

The U.S. currency hit another five-year high of 105.45 yen, its strongest level versus the Japanese currency since October 2008, and was last trading up 0.2 percent at 105.41 yen.

Dollar/yen stayed in a narrow range, with Japanese financial markets closed on Thursday and Friday for the New Year's break.

Volumes were low in late December and prices driven by factors such as euro zone banks repatriating funds to shore up their capital bases before the European Central Bank's year-end review of their assets, which supported the euro.

Traders will closely watch U.S. weekly jobless claims and the Institute for Supply Management's index of national factory activity later on Thursday for indications of the strength of the U.S. recovery.

"Last week the market was mainly determined by position rescaling," said Ulrich Leuchtmann, head of currency research at Commerzbank in Frankfurt.

"Today is the first day where fundamentals work out again ... That's why there is pressure on euro/dollar."

While few analysts expect the ECB, which holds a policy meeting next week, to change interest rates in the near future, the Federal Reserve is closely monitoring the strength of the U.S. recovery to gauge the pace at which it scales back its bond-buying.

"The sensitivity to surprises in data in the euro zone is much lower than the sensitivity to surprises in the data in the U.S." Leuchtmann said.

The Fed said in December that it would trim its monthly asset purchases by $10 billion to a total of $75 billion per month from January.

Germany's manufacturing PMI for December came in marginally above expectations at 54.3 on Thursday, while the euro zone manufacturing PMI was in line with forecasts at 52.7. Readings above 50 indicate expansion.

But it offered little sustained support for the single currency, which was down 0.5 percent against the yen at 144.08 yen.

"Over the last 20 years there's been a relatively strong tendency for the euro to fall and the dollar to rise in January," said Anders Soderberg, chief technical analyst at SEB in Stockholm.

In thin volumes the dollar rose 2.3 percent against the Norwegian crown to 6.1549 crowns, recovering ground it lost earlier this week.

The Australian dollar was down 0.4 percent at $0.8849 after official Chinese data released on Wednesday underscored the view that the world's second-largest economy lost some momentum in late 2013. China is Australia's top export market.

A separate private survey released on Thursday showed China's factory activity expanded at the slowest pace in three months in December.