The dollar jumped to a two-week high against the yen and a four-month peak against the euro on Tuesday after a series of US data raised the prospect of the US Federal Reserve hiking interest rates in the near-term.
In erratic trade, the dollar shot up to around 107.25 yen, a two percent rise from late New York levels, before dropping back to around 106.50 by 0610 GMT.
The euro fell to a four-month low of $1.1980 before edging back up to around $1.2010.
Traders said that in addition to buying by Japanese investors allocating funds for the new fiscal year, short-covering and options-related buying had accelerated the dollar's rise against the yen.
"I don't see anything new behind today's wild price movements," said Junya Tanase, forex strategist at J.P. Morgan Chase.
"The dollar's rise is an extension of buying back of the currency sparked by the strong economic data we've seen out of the US on Friday and yesterday".
The Institute for Supply Management's non-manufacturing index published on Monday surged to 65.8 in March, a 12th straight month of expansion, from 60.8 in February and compared with Wall Street economists' forecast for 61.5.
A number above 50 indicates growth. The upbeat figure came on the heels of US non-farm payrolls data on Friday that showed growth of 308,000 jobs in March, the biggest gain since April 2000.
The sign of a long-awaited recovery in the US jobs market stoked expectations that the Federal Reserve could raise interest rates from a 46-year low of one percent, which would boost the appeal of dollar-denominated assets for foreign investors.
Weak data from the euro zone was also weighing on its currency.
Unemployment in Germany rose by a seasonally adjusted 44,000 in March, a source told Reuters on Tuesday ahead of official government jobless data due on Tuesday.
That was far more than the market's expectation of 15,000, reflecting sluggish growth in the euro zone's biggest economy and contrasting with recent upbeat data out of the United States.
"Considering the euro zone's fragile economic fundamentals, I think the euro will go down in the medium-term," said Toshihiro Azuma, forex manager at Sumitomo Trust and Banking.
US interest rate futures such as euro dollar futures have priced in a Fed rate hike by September, but some analysts said the market was getting ahead of itself.
"I think that market expectations of a hike in the Fed funds rate this year are overly optimistic," said Fujii Tomoko, market and economic analysis director at Nikko Citigroup.
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