The dollar was on course for a third straight weekly advance on Friday, as more hints the United States is getting closer to raising interest rates kept the currency close to two-month highs after it pushed past $1.12 per euro for the first time since March. The Swiss franc, the currency benefiting most from the global economy's weakness since the 2008 financial crash, was set for its lowest weekly close since its revaluation in January of 2015.
Britain's pound was set for its strongest week against the euro since October as fears about next month's vote on European Union membership abated, although it dropped a third of a percent in morning trade in London. Overall the mood was one of consolidation after a week of volatility, driven by changes in Brexit polls and a revival of expectations for higher US rates.
"The dollar is rebounding and will remain on a stronger footing," said Lee Hardman, a strategist with Bank of Tokyo Mitsubishi in London. "We believe they (the Federal Reserve) are going to raise rates in June or July. We had thought they would wait for the Brexit vote to be out of the way, but that looks more questionable now."
The dollar index was last flat on the day at 95.312 after reaching 95.502 overnight, a level last seen on March 29. It was up nearly 0.8 percent this week and has risen 2.4 percent in the past three weeks, its best run since last November. Against the yen, the dollar gained 0.4 percent to set another three-week high of 110.395 yen, just above levels touched on Thursday. New York Federal Reserve President William Dudley said on Thursday said the US economy may be strong enough to warrant a rate increase in June or July.
He also said the Fed would have to "weigh up" the risks from the Brexit vote. Bank of Tokyo's Hardman said that suggested the Fed might feel comfortable raising rates just days before the June 23 vote if the chances of Brexit looked as low - around 15 to 20 percent - as markets are now pricing. However, outside of big dollar bulls like Deutsche Bank, calls are limited for the sort of broader rally that took the greenback to within 5 cents of parity with the euro a year ago.
"We still expect a gradual hiking cycle, and with it limited USD gains," Bank of America Merrill Lynch analysts said in a note. "Most of the 'policy divergence' FX move has occurred." So far, net market bets on the dollar point to weakness, not strength. More market data is due on Friday. A G7 meeting of central bankers and finance ministers opened in Japan on Friday, but its impact may have diminished after a recent weakening by the yen.
The Japanese currency had surged to an 18-month high against the dollar earlier in May, prompting threats of intervention from Tokyo. US officials reiterated Treasury Secretary Jack Lew's message that there have been no "disorderly" moves in the market that warranted intervention.