The dollar touched a five-week high against the yen and a six-week peak against the euro on Friday as better-than-expected U.S. jobs data reinforced expectations the Federal Reserve would start scaling back its asset purchases as early as September.
Futures traders were also betting the U.S. central bank will start raising short-term interest rates by September of next year, a step that would make dollar assets more attractive.
Almost all the components of the U.S. nonfarm payrolls report for June were positive for the economy, suggesting that the labor market was stabilizing. Employers added 195,000 jobs, compared with forecasts of 165,000, while the unemployment rate was steady at 7.6 percent as more people entered the workforce.
The U.S. Labor Department also revised payrolls for April and May to show 70,000 more jobs created than previously reported.
"The stronger-than-expected 195,000 payrolls in June should send U.S. rates scurrying higher and bring the day of reckoning for quantitative easing that much closer," said Joseph Trevisani, chief market strategist at WorldWideMarkets. "The dollar will continue to benefit from the prospective terminus of QE."
The euro fell as low as $1.2805 against the dollar, its weakest since May 20. It was last trading at $1.283, down 0.6 percent.
Against the yen, the dollar touched a peak of 101.12 yen, its highest since May 31. It was last at 101.13, up 1.1 percent.
Some $5.05 billion in euros changed hands, using Reuters Dealing data, and $2.5 billion in yen.
The euro fell against the dollar for the third straight week with a 1.4 percent decline so far this week. The dollar gained against the yen for the third straight week with an almost 2 percent rise so far this week.
The greenback's gains pushed the dollar index to a high of 84.530, a nearly three-year peak. By mid-afternoon, the dollar index was up 1.5 percent at 84.43.
The Fed's potential reduction of stimulus measures was in sharp contrast with statements from the European Central Bank and the Bank of England, which vowed Thursday to keep their monetary policies accommodative for some time.
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"Overall, the data fits neatly in the 'QE3 taper' framework set forth by the Federal Reserve at its June 19 policy meeting; translating roughly into a stronger U.S. dollar," said Christopher Vecchio, currency analyst at DailyFX in New York. "We remain long-term bullish the U.S. dollar, as the uptick in yields bodes well for the world's reserve currency so long as inflation and labor market data continue to improve."
The spread between the benchmark 10-year U.S. Treasury bond's yield and comparable German Bunds was at its widest since April 2010, pointing to more gains for the dollar.
Sterling, meanwhile, fell to a nearly four-month low of $1.4856 against the dollar and was last at $1.4897, down 1.1 percent.