The dollar rallied on Wednesday in a technical rebound after US economic reports prompted dealers to reverse large bets against the currency.
A report on manufacturing activity in the New York area, in particular, suggested the US economy may be back on track after the summer's soft patch.
"In the bigger scheme of things, the data are saying the US economy is growing, but just not at an exceedingly rapid rate. In the big picture, this is good for the dollar," said Jeremy Fand, senior trader at WestLB in New York.
In late trade in New York, the euro traded around $1.2151, about 0.8 percent weaker from US levels late on Tuesday.
Against the yen, the dollar was up around 0.3 percent at 110.00 yen and up around 0.8 percent against the Swiss franc at 1.2695 francs.
The dollar continued strengthening after brushing off a report which showed industrial production growth nation-wide was virtually flat last month, as traders scrambled to cover short dollar positions.
But traders said the extent of the dollar's gains on the back of only mildly encouraging data suggest position adjustments and stop-loss trading were at play as much as anything else.
On the reversal of market positions that had been previously slanted against the dollar, Greg Schwake, vice president of proprietary trading at Fortis Bank in New York said: "It is very choppy, a lot of the longer-term players are getting involved."
US industrial production rose only 0.1 percent in August, compared with an upwardly revised 0.6 percent in July and economists' forecasts of a 0.5 percent increase.
This was below expectations but the dollar managed to continue its rally prompted by the Federal Reserve Bank of New York's regional survey of factory activity for September, which jumped to a higher-than-expected reading of 28.3. Economists surveyed by Reuters had expected an increase to 18.8, and August's number was also revised slightly upward.
The surprise jump in the New York Fed index lead some analysts to predict that the Philadelphia Fed's business conditions index due on Thursday could come in higher than expected.
The currency market also looks to the latest data on US capital inflows early Thursday. The data have become more important in light of the record US current account deficit in the second quarter.
"If (inflows) slow down or go below the level of the trade deficit you may have some people questioning the dollar rally today," said Malpede.
The dollar pared some gains against the yen after US Treasury Secretary John Snow said he wanted to see the pace of China currency reform speeded up.
Late afternoon in New York, the dollar slipped from about 110.13 yen just before Snow's remarks, to 110.00 yen.
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