The dollar jumped to its highest in more than four months against the yen on Thursday, still benefiting from Federal Reserve minutes released the previous day that suggested U.S. policymakers could start scaling back stimulus earlier than expected.
The euro, meanwhile, recovered earlier losses against the dollar after European Central Bank President Mario Draghi played down the possibility of the central bank implementing negative deposit rates. The news on negative rates had pressured the euro earlier on Wednesday, adding to losses after the Fed minutes came out.
"The Fed minutes did help the dollar a lot, especially against the yen, as it puts a December taper back onto the table," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
Many market participants expect the Fed to start reducing its bond purchases in March 2014.
The dollar rose to 101.06 yen, its highest since July 10. It was last up nearly 1.0 percent at 100.99 yen.
The yen came under strong selling pressure as market players expected Japanese monetary policy to remain ultra-loose for some time.
"With U.S. monetary policy officials moving toward tightening while the BoJ (Bank of Japan) is fully committed to an expansionist policy, dollar/yen may be finally ready to resume its rally and if it can clear the resistance at 101.50 it may target the yearly highs over the next several weeks," said Boris Schlossberg, managing director of FX strategy, at BK Asset Management in New York.
The poor French data was partly offset by better-than-expected German activity data. The euro was last up 0.2 percent on the day above $1.34, off an earlier low of $1.3399, its lowest in just over a week.
Buoyed by the Fed minutes, the dollar reached 100.85 yen , its highest since late July, as U.S. 10-year Treasury yields shot up to a two-month high. It was last up 0.7 percent on the day just under 101 yen.
The dollar index hit a one-week high of 81.29, after climbing 0.5 percent on Wednesday in its biggest one-day gain in about two weeks.
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