The dollar powered to six-week highs against the yen and hit two-week peaks versus the euro on Friday as investors bought back the US currency after months of dumping it across the board.
Analysts viewed this as a temporary pause in the dollar's two-year downtrend but said the euro's sharp pullback from Wednesday's record highs above $1.29 meant new peaks for Europe's single currency in the near term looked less likely.
"The market is taking a breather before its next assault on $1.30 and we are seeing an unwinding of short dollar positions," said Mark McFarland, currency strategist at UBS.
Dealers said technical trade was dominating, though US consumer price data at 1330 GMT and speeches from several Federal Reserve officials would be eyed for clues on the future path of US interest rates.
"The market is nervous after the roller coaster ride we've seen and speculators are driving the action," said Michael Klawitter, senior currency strategist at West LB.
By 1242 GMT, the dollar was three quarters of a percent higher against the yen at 107.85 and half a percent higher against the euro at $1.2655.
High-yielding currencies, which have outperformed this month, also succumbed to the greenback's rebound. Sterling was nursing losses of 0.8 percent at $1.8784 while the Australian dollar was down three quarters of a percent at US $0.7855.
US consumer inflation figures are expected to show a 0.1 percent rise in the core reading and a 0.3 percent rise in the headline figure for January.
Federal Reserve Bank of St Louis President William Poole is due to speak on the state of the US economy at 1345 GMT and Fed board governor Ben Bernanke is slated to make a speech at 1745 GMT.
Fed Chairman Alan Greenspan is due to speak on education in the economy at 1845 GMT. No question and answer session is expected.
The fact that short term players such as momentum and hedge funds were driving much of the dollar's rebound bolstered the perception this did not yet amount to a turning point for the greenback.
"We are seeing a broad correction now, which is mainly technical," said Trevor Dinmore, foreign exchange strategist at Deutsche Bank. "The price action above $1.29 was disappointing and convinced some players that we may not see an immediate move to $1.30."
This week, fresh comments from European officials fuelled nervousness that the European Central Bank could intervene by selling euros, particularly if the euro extends its rally into the $1.30-$1.35 zone.
Yen traders were also keen to unwind short dollar positions since persistent intervention from Japan had been successful in keeping the greenback above the psychologically important 105 yen level.
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