The dollar jumped on Thursday, recovering further from a one-year low against the euro and an eight-month trough versus the yen, after the US Treasury stopped short of calling China a currency manipulator in a much-anticipated report.
The dollar benefited from a belief in the market that Wednesday's report on currency practices meant less immediate pressure on Beijing to boost the yuan
That translates into reduced pressure on all Asian currencies including the yen, which is seen as a proxy for the yuan, to rise against the dollar.
"The short-term fear of a dollar crash has gone," said the chief trader at a European investment bank in Tokyo. "From here on we should see a normal market."
The dollar had tumbled earlier on Wednesday when a Federal Reserve interest rate decision failed to alter the view that the central bank, after 16 straight rate rises, is near the end of its two-year credit tightening cycle.
In a statement accompanying its decision to raise the federal funds rate by 25 basis points to 5 percent, the Fed said it may need to raise rates again to keep inflation down, but further tightening would increasingly depend on the economic outlook.
In a Reuters poll taken after the Fed statement, 14 of 20 Wall Street bond dealers said they expect the central bank to stand pat at the next policy meeting at the end of June.
When the market's worst-case scenario for the dollar did not materialise in the Fed statement and the Treasury report, a wave of dollar buying was unleashed as investors covered short positions. The dollar was up 0.6 percent at 111.20 yen after falling as low as 110.10 yen on Wednesday.
The US currency's gains against the yen helped to drive the euro down 0.4 percent to $1.2735 - off the one-year high of $1.2838 marked on Wednesday on electronic trading platform EBS. Sterling was at $1.8555, slipping further from a one-year high of $1.8735 struck in the previous session. The single European currency climbed to 141.55 yen from around 141.25 yen.