The dollar rallied on Thursday as fears of dollar-buying intervention and a sharp fall in oil prices convinced traders that it was a good time to take profits after days of heavy dollar sales. After registering another all-time low against the euro overnight, the dollar rose as high as $1.3239 per euro. The dollar had set new lows against the euro in seven of the last eight sessions.
The greenback also rose from a five-year low against the yen and a new 12-year bottom against sterling.
Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York, said selling of other currencies for the dollar "cascaded" after the dollar made new lows.
Fears about dollar-buying intervention, particularly by the Bank of Japan, and the desire to cut back on short dollar positions ahead of Friday's US payrolls report encouraged traders to buy back dollars, Franulovich said.
"People are nervous about the BOJ and there was a big washout of dollar shorts," he said.
Late afternoon in New York, the euro was down 0.43 percent at $1.3272, far below the record high of $1.3383 touched in overnight trade, according to Reuters data.
Against the yen, the dollar was up 0.53 percent at 103.15 yen well off a five-year low of 101.86 yen reached earlier.
Against the Swiss franc, the dollar was up 0.94 percent at 1.1510 francs.
Sterling was down 0.44 percent to $1.9241 after earlier posting a new 12-year high of $1.9438.
Japanese Finance Minister Sadakazu Tanigaki on Thursday said market moves had been volatile and Japan was in "close contact" with European and US authorities.
But a senior euro zone official later said that European finance ministers had not discussed joint intervention with Japan and did not urge the European Central Bank to intervene.
Comments by an adviser to US President George W. Bush underscored the market's belief that US officials were not as worried about the country's structural imbalances or the weak dollar as their European and Japanese counterparts.
Greg Mankiw, chairman of the president's Council of Economic Advisers, said the US current account gap reflected strong growth and foreign demand for US assets and was not a problem in and of itself.
Analysts said a second day of sharp falls in oil prices also helped boost the dollar on views lower prices would aid the US economy and lessen inflationary pressure.
Oil prices fell nearly 5 percent on Thursday and US light sweet crude prices are now nearly $6 lower than just two days ago at $43.25.
Technical analysts pointed out that the euro, in setting new highs against the dollar during the session and then closing below the prior day's low, had what is called a bearish key reversal day that could portend further losses for the euro and gains for the dollar.
But others said dollar gains could be short-lived.
The US government will release November payrolls data on Friday, and Marta said a strong number could spur further short-term dollar gains. Economists' median forecast is for a rise of 180,000. "If we happen to get an above-consensus number tomorrow, it perhaps takes the dollar higher," he said. "But the overriding concern with the US economy is structural, and it is hard to make cyclical arguments for the dollar."