The dollar firmed on Wednesday, keeping gains made after Federal Reserve Chairman Alan Greenspan said US economic growth was solid, which reinforced expectations of a steady rise in interest rates.
The dollar rose after the Fed chief said on Tuesday in his semi-annual review of monetary policy that the US economic expansion had "become more broad-based" and had "produced notable gains in employment".
"Greenspan's comments were more hawkish than the market was expecting, and that surprise has led to some broad-based dollar buying," said Ko Haruki, head of institutional forex sales at HSBC in Tokyo.
"The market is now more convinced that we'll get a hike of 25 basis points at each of the four remaining FOMC (Federal Open Market Committee) meetings this year."
The euro fetched around $1.2320, compared with 1.2330 in late New York trade and a 4-1/2 month high of 1.2462 hit on Monday.
It was within sight of a one-week low of around $1.2300 hit on Greenspan's initial comments to the Senate Banking Committee.
The upbeat testimony came after a period of pressure on the dollar from US data that hinted at a possible slowdown in the US economy.
Since the Fed raised interest rates by 25 basis points last month from a 46-year low of 1 percent, the central bank has repeatedly signalled that any future increases would be gradual. Higher US interest rates tend to enhance the attractiveness of dollar-based assets for global investors.
Traders were waiting on what Greenspan would say when he appears again at 1400 GMT before the House Financial Services Committee.
HSBC's Haruki said that given a quiet data calendar for the next week or so, the dollar's strength would likely continue until the end of July, when US gross domestic product data for the second quarter will shed more light on the economic recovery.
Some traders said the euro would likely challenge $1.22 in coming days, with a break through that level possibly resulting in a move towards a June 14 low of $1.1954.
"Given that there is no compelling reason to buy the euro unless you don't want dollars, the euro might be overbought," said a trader at a Canadian bank in Tokyo.
The Japanese currency traded at around 108.70 yen per dollar, hardly changed from the late New York level.
It is expected to stay trapped in the narrow range of 107-110 yen that it has floated in recently.
The yen found some support from a 1.5 percent rise in Japan's Nikkei share average, and news that the government would upgrade its economic growth forecast for this fiscal year to 3.5 percent.
That would be nearly double the government's projection made last year, and would bring it in line with bullish forecasts by private sector economists.
But cooling economic expansion in the United States and China - Japan's two main export markets - made some traders nervous about the yen's outlook.
"A slowdown in the US and China in the second quarter has been capping the yen," said Junya Tanase forex strategist at J.P. Morgan Chase.
"We think these economies will accelerate in the third quarter, which, if true, will help the yen in the end."