The dollar scaled a two-year high against the pound and rose back toward two-year peaks against the yen and the euro on Friday as investors bet the greenback's bull run would continue.
The US currency got a lift as a G7 source told Reuters the dollar's strength was not a problem and said a meeting of G7 finance ministers and central bankers in London in December would discuss the sustainability of the dollar's rally.
"There were still some worries that given the sharp move we've seen in recent weeks that the G7 would be a little more concerned - the reality is that they aren't concerned," said Mitul Kotecha, global head of foreign exchange research at Calyon.
The dollar has risen 16 percent against the euro and yen this year on the back of higher US rates, but analysts say global policy-makers appear relaxed with recent sharp currency moves.
The United States is expected to press on with its campaign of rate rises in coming months, following 12 straight hikes, while the interest rate outlook for the euro zone, the UK and Japan is less certain.
"It still looks like a positive environment for the dollar. Interest rate factors are still the most important factor," Kotecha added.
By 1230 GMT, the dollar was trading at 119.15 yen, up nearly half a percent from the US close and approaching this week's peak near 119.60 yen, the highest since August 2003.
The yen remained on the back foot even after comments from Bank of Japan Governor Toshihiko Fukui, who reiterated the chance was growing that the central bank would ditch its ultra-easy monetary policy in the fiscal year from April 2006. The single currency dropped 0.6 percent against the dollar to $1.1685, within striking distance of a two-year low below $1.1640 hit on Tuesday.
Sterling hit a two-year low of $1.71 and tested one-month lows against the euro, as markets speculate about an interest rate cut in the UK. The G7 source told Reuters the dollar's strength was not a problem as long as there was an orderly adjustment.
"This was a very interesting comment, given the timing before G7," said Paul Mackel, currency strategist at ABN Amro, on the G7 source comments. "It's the focus for the dollar today and we may see more comments coming from the sidelines of the meeting in Frankfurt."
ECB President Jean-Claude Trichet is due to speak at a conference in Frankfurt later on Friday.
The source added there was currently no pressing argument for yuan revaluation as there was no sign Chinese inflation was overheating.
US President George W. Bush is due to visit China this weekend and is expected to press China to allow its currency to trade more flexibly.
The source also said euro zone fundamentals remained weak, and that euro weakness was not uncomfortable for the European Central Bank.
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