The dollar climbed steeply against the yen on Thursday as traders were wary of Japanese yen-weakening intervention, but rose more modestly against the euro as traders took positions ahead of Friday's US payrolls report.
The dollar rose against the Japanese currency, breaking just above the 111.0 yen mark - cited as a key resistance area - to four-month highs. Some traders said they suspected that Japan might have bought dollars around the 110.50 yen mark, followed by private sector buying up to the 111.0 yen zone.
"Dollar/yen looks like it is on a firm march to 115.0 yen," said David Leaver, senior trader with Gain Capital in Warren, New Jersey. Traders cited hefty options positions around 111.0 yen, which once broken could lend the dollar more upward momentum.
The dollar pared early gains against the euro, trading only modestly higher after European Central Bank President Jean-Claude Trichet said euro zone monetary policy remains appropriate, dimming rate cut expectations.
That would maintain the 1 percent gap between euro zone interest rates and those in the United States for a time, keeping the euro attractive to investors.
In late afternoon New York trade, the euro was down about 0.1 percent at $1.2188. The dollar was up 0.9 percent at 111.02 yen after touching a four-month high near 111.12 yen. Sterling fell about 0.4 percent to $1.8225. The dollar was up about 0.1 percent at 1.2932 Swiss francs.
Many in the market had been on alert for comments from the ECB's Trichet indicating a European interest rate cut may be imminent. Instead, he cited favourable growth prospects and gave the impression that rates were fine where they are.
Prior to Trichet's remarks, the ECB had voted, as expected, to leave rates steady at 2 percent.
"(Trichet) didn't seem to be leaving the door open too much for a rate cut," said Steven Englander, chief currency strategist for North America at Barclays Capital in New York.
Trichet said most indicators point to a strengthening recovery in the euro zone, with recent growth data confirming gradual second-half recovery. The euro initially climbed above $1.2180 following Trichet's comments.
The dollar weakened slightly after weekly government data on US jobless claims offered no surprises.
The number of Americans signing up for first-time jobless benefits slipped to 345,000 in the week ended February 28, exactly as expected. The claims data came under added scrutiny ahead of Friday's February US payrolls report.
"This stuff was spot on, totally as expected, so from here markets can talk about the payrolls report," said Tim Mazanec, senior currency strategist at Investors Bank & Trust in Boston.