The dollar hit a 14-month high against the yen and rallied against other currencies on Tuesday as comments by key Federal Reserve officials cemented expectations for steady rises in US interest rates.
The euro rose briefly after the closely watched ZEW index of German investor confidence hit a 9-month high in July but the surprisingly robust reading was not enough to dispel concerns about Europe's largest economy.
Fed Chairman Alan Greenspan, who gives semi-annual testimony to the US Congress on Wednesday, said in remarks released on Monday that although soaring oil prices have hampered US economic growth, the US economy was coping well and set to expand at a moderate pace.
St. Louis Fed President William Poole echoed that optimism on the economy and said inflation was under control and market forecasts for higher Fed rates were reasonable.
"These comments have reduced expectations that we will see any hint of a pause in tightening in Greenspan's testimony on Wednesday," said Tom Vosa, head of market economics at National Australia Bank.
By 1120 GMT the dollar had risen as high as 112.78, up 0.7 percent to bring its gains since January to 10 percent. It was up 0.8 percent at 1.3050 Swiss francs.
The euro was down 0.6 percent at $1.1977 after rising briefly above $1.20 after the ZEW indicator was released. It has lost more than 11 percent since January.
The expectations indicator from Germany's ZEW economic think tank rose to 37.0 in July, its highest since September 2004, compared with 19.5 in June and a forecast for 22.0. Confidence was boosted by a stable global economy and a weaker euro.
"Despite the fact that the ZEW was way stronger than anticipated that improvement was basically a function of the weaker euro," said Jeremy Stretch, senior market strategist at Rabobank.
The Fed has raised its key rate nine times since June 2004, bringing it to 3.25 percent and increasing the dollar's allure over the euro and the yen, which yield 2.0 percent and near zero percent.
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