The dollar jumped to a two-week high against a crumbling yen on Tuesday as a brightening economic picture in the United States bolstered expectations US interest rates will rise sooner rather than later.
But the dollar eased off recent four-month peaks against the euro as the single currency also surged against the yen, triggering automatic buy orders as the yen tumbled through key technical levels against a range of currencies.
Dealers said volumes were ebbing before this weekend's Easter break and position-squaring in thin market was making for volatile moves.
"We've seen a very sharp move but it was more position liquidation than fundamental flows," said Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi.
The dollar surged as much as two percent to a two-week high of 107.25 yen before paring gains to 106.15.
The euro also made strong gains against the yen after triggering automatic buy orders on a break above 128 yen. Such gains allowed the euro, which tested four-month lows against the dollar earlier in the session, to stand two-thirds of a percent higher at $1.2090 by 1020 GMT.
German unemployment rose by a larger than expected 44,000 to 4.344 million in seasonally adjusted terms in March and the adjusted unemployment rate rose to 10.4 percent.
Dealers continued to keep an eye on the situation in Iraq but noted the dollar had become more resilient to violence in the region.
At least 48 Iraqis and eight American soldiers were killed as part of a Shia uprising in Baghdad and Najaf on Sunday and further casualties have followed.
After a surprisingly robust US payrolls report last Friday, dollar bulls had further supportive news on Monday when the Institute for Supply Management's non-manufacturing index surged more than expected and notched its 12th straight month of expansion.
Signs of a long-awaited recovery in the US jobs market fuelled expectations the Federal Reserve could raise interest rates from a 46-year low of one percent sooner than expected, boosting the appeal of dollar-denominated assets for foreign investors.
US interest rate futures have priced in a Fed rate hike by September although some analysts say the market is getting ahead of itself.