The euro rallied for a third day in a row against the dollar on Thursday as expectations for the Federal Reserve to keep rates on hold faded, while the yen felt the brunt of a continuing increase in risk appetite.
In a session dominated by rate differentials, the euro was also on track for its largest one-day rise against the yen in nearly three weeks after the Bank of Japan left its benchmark overnight call rate unchanged at 0.5 percent by eight to one, the same vote tally as at the past three meetings.
But the focus remained squarely on the dollar, which has now surrendered all the gains against the euro from last Friday's strong jobs data that soothed some concern about the resilience of the US economy and undermined expectations for further rate cuts this year.
"Most of the uncertainty for the US is not past us and won't be until the end of the year, as we roll into the beginning of next year and see if we get more worries or if concern over poor earnings materialises," said Morgan Stanley currency strategist Laura Ambroseno.
"It's too early to tell clearly Europe is also being impacted by a couple of things. At the margin, the impact that the August/September events will have in terms of tighter credit and higher rates, but you also have the European economy and the UK reaching a natural peak in their own business cycles," she said.
At 1050 GMT the euro was up 0.4 percent against dollar $1.4206, set for its biggest one-day rise in two weeks. The dollar hit a session high of 117.63 yen, its highest since August 15, just before the Federal Reserve cut its discount lending rate to banks at the height of the credit market turmoil.
By 1133 GMT the dollar was last up 0.4 percent at 117.58 yen, while the euro rose 0.7 percent to 166.79 yen, its highest since late July. The euro has risen by about 1 percent against the dollar in the past three trading sessions as investors continue to price in at least one more US rate cut by the end of the year, even after last Friday's strong jobs data.
Markets show investors are still attaching a roughly one-in three chance of another cut at this month's policy meeting, but are increasingly looking for a cut by year-end.
In line with a surge in global equities and emerging markets, the yen came under pressure. Adding to that was BoJ Governor Toshihiko Fukui, who said upward price pressure was gradually rising, but wages were not rising as much as expected, dampening expectations for any near-term rise in Japanese rates.
Meanwhile the euro fell sharply against the Swedish crown after Swedish inflation data came in above expectations. The Swedish crown earlier hit an 8-month high versus the euro at 9.1010 crowns after the data and a fresh 15-year high against the dollar at 6.4085 crowns.
Against sterling, the euro rose 0.7 percent to 69.71 pence, in its biggest daily rally in two weeks. The Canadian dollar hit a three-decade high versus the US dollar, touching C$0.9748 as a continued rally in oil and commodity prices boosts the Canadian currency.