The dollar climbed to a 27-month peak against the yen in holiday-thinned trade on Friday, boosted by the market's renewed belief that rising US interest rates will favour the greenback in the near term.
The dollar also firmed against European currencies, forcing the euro down near $1.17.
The US currency's gains showed it "has continued to recover from Tuesday's minutes of the November 1 Fed meeting, which introduced some uncertainty into the longer-term outlook for US interest rates and triggered the notion the Fed may be less aggressive" in raising interest rates, said Alex Beuzelin, foreign exchange market analyst with Ruesch International in Washington, D.C.
The US central bank's minutes from its November 1 meeting, released on Tuesday, revealed some policy-makers were concerned about the risk of going too far with the Fed's rate-hike campaign.
"But the market has digested those minutes and the reality remains that in the near term, the Federal Reserve will continue to outpace its central bank counterparts in Europe and in Japan, which means the dollar's rate advantage will get better," Beuzelin added.
In 2005, the dollar has rallied as rising US interest rates and yields have burnished the appeal of dollar-denominated deposits to foreign investors.
The yield spread between 10-year government bonds in the United States and the euro zone "has moved savagely in the euro's favour in the last two weeks, but in the last couple of days it has retraced and moved against the euro quite a bit," said Richard Franulovich, senior currency strategist with Westpac Banking Corporation in New York.
This renewed widening of US Treasury yield spreads over German bunds, the euro zone equivalent, has restored some support to the dollar, Franulovich added.
In late trading on Friday, the euro traded at $1.1718, down 0.6 percent.
Meanwhile, the dollar rose to new 27-month highs at 119.71 yen, according to Reuters data, and was last at 119.62 yen, up 0.6 percent from late Thursday.
Against the Swiss franc, the dollar traded up 0.3 percent at 1.3195 francs. The Swiss currency earlier rallied against the euro and dollar after stronger-than-expected Swiss data.
The moves took place in thin volume, US-based traders said, with desks having only light staffing after Thursday's Thanksgiving holiday.
With little US economic data to speak of, major currencies were rangebound as analysts braced for next week's array of potentially market-moving economic reports.
Next week brings gross domestic product data for the third quarter, the core PCE price index - an inflation gauge watched closely by the Fed - the Institute for Supply Management November manufacturing report and the November non-farm payrolls report, for which economists' median forecast is a rise of 210,000 jobs.
The currency market has high expectations for the jobs report, ISM manufacturing survey and inflation data, "which all point toward continued strength in the economy and favour the US dollar," said Tim Mazanec, director and senior currency strategist with Investors Bank & Trust in Boston.
The Federal Reserve's monetary-tightening campaign, which is expected to lead to further rate increases, has helped drive the dollar up more than 15 percent against the euro and yen this year.
The Federal Reserve is expected to raise rates next month to 4.25 percent from the current 4 percent, while the European Central Bank is seen increasing its refi rate by 25 basis points to 2.25 percent next Thursday.
The yen was also knocked against the dollar as mixed Japanese inflation data cemented expectations that interest rates in Japan won't rise soon.
"The yen remains the weakest link due to the benign rate outlook in Japan," said Niels Christensen, senior currency strategist at Societe Generale in Paris.
China disappointed offshore investors with a one-year, $6 billion currency swap that priced the yuan at a weaker level than had been expected in the one-year forward markets.
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