The dollar rebounded on Friday as a robust US durable goods report and more comments from Fed officials strengthened the view that US interest rates will head higher in the near term, analysts said.
High US rates tend to boost yields of dollar-denominated assets, enhancing their appeal to global investors.
Comments by a host of Federal Reserve speakers on Friday did little to alter market expectations that US interest rates will rise from the current 1958 low of 1 percent.
US orders for durable big-ticket items rose 3.4 percent in March, well above the 0.8 percent Wall Street economists had expected, triggering a sharp rally in the dollar.
"Today's story is actually one of dollar strength, a sell-off in the US debt markets and expectations of higher US interest rates," said Marc Chandler, currency strategist at HSBC in New York.
"Markets are placing an even greater chance of a Fed rate hike in the second quarter. Basically the whole (Eurodollar) futures strip has sold off, implying that markets are perceiving a greater likelihood of more Fed rate hikes over the course of the year," Chandler said.
In midday New York trade, the euro fell to session lows around $1.1798 against the dollar, breaching key support of $1.1810, traders said. The single currency euro also retreated against the yen, dropping 1 percent to 128.99 yen.
The yen weakened briefly after German-American carmaker DaimlerChrysler said it would sell its 37 percent stake in Mitsubishi, worth around 175 billion yen. The dollar came off intraday lows against the yen to trade at 109.26 yen.
The US currency rose to a five month high against the Swiss franc of 1.3207 francs, before paring gains to 1.3183 francs. Sterling dropped to $1.77. The Australian dollar earlier declined 1 percent, before rebounding to US$0.7298, still down about 0.6 percent.
Chicago Federal Reserve Bank President Michael Moskow echoed comments from top Fed officials this week, saying that the US economic outlook is encouraging and that interest rates will have to rise at some point.
Earlier, Fed Vice Chairman Roger Ferguson repeated comments from Chairman Alan Greenspan that disinflation, or downward pressure in US prices, appears to have ended and that inflation has apparently stabilised. Richmond Fed President Alfred Broaddus and Fed Governor Ben Bernanke are scheduled to speak later in the day. "Anyone who has pained themselves to read the slew of Federal Reserve official speeches knows that they are laying the groundwork for higher interest rates," said Andrew Busch, global foreign exchange strategist at BMO Nesbitt Burns in Chicago.
Markets are also bracing for a Group of Seven meeting of finance ministers from industrialised nations on Friday and Saturday in Washington, D.C.
Analysts say the G7 communiqué to be released on Saturday is unlikely to differ substantively from the one at their February meeting in Boca Raton, Florida.
With the dollar trading about 10 cents above February's record lows against the euro, currencies are expected to be less of an issue than in February when the G7 decried "excess volatility" and urged greater exchange rate flexibility.
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