The dollar index was 0.28% higher to 97.342 and 0.26% stronger against the yen at 108.42. Some of the afternoon recovery can be attributed to an Institute for Supply Management survey showing that U.S. services sector activity expanded at a brisk pace in May.

The recovery in the dollar may also be attributed to an initial overreaction to data this morning.

Wednesday's ADP National Employment Report showed U.S. private employers added 27,000 jobs in May, well below forecasts and the smallest monthly gain in more than nine years. The data knocked the dollar, adding to a multi-day slide on rising expectations of an interest-rate cut.

Federal Reserve Chairman Jerome Powell dropped his standard reference to the bank being "patient" in approaching a rate decision on Tuesday, saying instead it would respond as "as appropriate" to trade pressure.

"I don't think the Fed wants to cut," said Marvin Loh, senior global markets strategist at State Street Global Markets. "The data remains, not great compared to last year, but above trend."

"Not only are we pricing in rate cuts aggressively, we're pricing them in soon."

The U.S. Labor Department delivers its non-farm payrolls report on Friday, which includes both public and private sector employment. Economists polled by Reuters expect that report to show job growth slowed in May.

"We'll be looking for some sort of confirmation that the three month average is still in place. Last month was such an outlier in terms of gains that you would expect it to slow down a bit," said Loh.

The European Central Bank meets on Thursday, with investors looking to see how concerned policymakers are about signs of a downturn in growth. The euro was 0.25% weaker at $1.122 on the dollar move.

Recession fears are sweeping across the world and central banks, including those of Australia and New Zealand, have cut rates in recent weeks.

Weakness in global growth may ultimately be benefiting the dollar, despite the increased expectations of a rate cut.

"When the Fed stopped hiking, given the falloff in some of the global counterparts - where you saw slowing in Europe, slowing across the globe - the dollar was getting an implicit bid because of the relative price," said Carl Mastroianni, portfolio specialist at Insight Investment.

(Reporting by Kate Duguid and Tom Finn; editing by Grant McCool)

By Kate Duguid