The dollar rallied against most currencies except the yen on Friday, helped by US economic data and comments by US President George W. Bush and a top Federal Reserve official viewed by the market as supportive of the US unit. The yen also climbed, pushing the dollar to five-year lows after the head of the European Central Bank reiterated a call for foreign exchange flexibility in Asia.
By late afternoon in New York, the euro fell to $1.3103, down 0.9 percent, while the dollar dropped against the Japanese currency to 101.80 yen, its lowest level since early 2000, according to Reuters data.
The euro also traded sharply lower at 133.65 yen, down more than 1 percent from late Thursday.
The Japanese currency's move followed European Central Bank President Jean-Claude Trichet's comments on Friday in an interview on French television.
Trichet's comments were seen as directed at China and the pegging of its currency to the dollar, which some nations say gives it an unfair trade advantage.
The dollar was supported by US economic data, particularly December industrial production numbers, which rose more sharply than forecast. Producer prices fell 0.7 percent, but the core index was closer to expectations, providing a modest boost to the greenback.
The dollar rose nearly 0.8 percent against the Swiss franc, to 1.1812 francs. Sterling was down at $1.8696.
"The dollar's rally was due to a number of factors - we had some dollar-positive economic news. But more importantly, we had the Bush interview overnight where he outlined his plan to cut the US budget deficit, as well as a hawkish statement from a Fed official," said Manfred Wolf, director of foreign exchange at HVB Bank in New York.
Traders said they did not expect much action from here on because of the long weekend, with most dealers anticipating the euro to stay around the $1.31 level.
The US financial markets will be closed on Monday for the Martin Luther King Jr. Day holiday.
On Tuesday, markets will bracing for the US capital flows report for November. The report has been a major factor in determining the dollar's price action, given the market's renewed focus on the US current account deficit.
"Everybody is waiting for the Treasury flows data. In my mind, the data could trigger some sharp moves in the dollar either way, depending on the outcome. My guess is the dollar could either rise or fall 2 percent," said HVB's Wolf. Earlier in the global session, a 0.8 percent rise in December US industrial output, above economists' forecasts of a 0.4 percent increase, fuelled some modest dollar buying.
That report "fits in nicely with market expectations of the economy continuing to grow above trend. However ... today's good information with respect to PPI and industrial production had only a passing impact," said Michael Woolfolk, senior currency strategist with the Bank of New York.
"The market's focus remains Bush's commitment to cut the fiscal deficit and developments in the external (US trade) imbalance with Asia," he said.
Bush told USA Today on Thursday that the budget he proposes next month will freeze spending for some programs and deny funding to others to meet his deficit reduction goals.
Bush reiterated the administration's strong dollar policy and said he was confident foreign investors would find the United States a good place to invest, boosting the dollar.
Earlier the dollar surged after St. Louis Federal Reserve President William Poole hinted the US central bank could accelerate the pace of raising interest rates.
Higher US rates tend to burnish the attraction of short-dated dollar deposits to foreign investors.
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