The dollar rose to a seven-week peak against the yen and moved further away from a record low versus the euro Friday after Citigroup earnings sparked hope the credit crisis may be nearing an end.
Problems in the U.S. financial sector have been triggered by weakness in the housing market and some analysts see further falls to come, but Citigroup's earnings temporarily eased those fears and increased risk appetite, making the dollar more attractive.
Citigroup, the largest U.S. bank, posted a quarterly loss of $5.1 billion, adding to losses in the previous quarter, and pre-tax write-downs of $6.0 billion. But shares in the company rose as investors were appeased by efforts being made to get past credit problems and drive down costs.
"There's a prevailing sentiment that we're getting past the worst and it's a sentiment that is growing and driving some improvement in the dollar," said Nick Bennenbroek, head of FX strategy at Wells Fargo in New York.
In midday trading, the dollar rose nearly 2 percent against the yen to 104.47 yen, earlier reaching its strongest level since late February at 104.64 yen.
Against the low-yielding Swiss franc , the dollar rose to a roughly five-week high at 1.0283 francs and last traded at 1.0242, up 1.7 percent from late on Thursday.
The dollar index was trading at 72.256, up 0.9 percent.
The euro fell as much as 2 cents against the dollar from its daily peak. It last traded down more than 0.9 percent on the day at $1.5747 in midday New York trading, well away from a record peak of $1.5983 hit earlier in the week, according to Reuters data.
The euro was also stung by a sharp climb in the British pound on expectations of an imminent U.K. plan to aid the struggling mortgage market. Hope that the plan may limit the extent of U.K. interest rate cuts pushed euro/sterling down more than 1 percent to 78.99 pence.
The euro, however, got a brief boost on remarks by European Central Bank Governing Council member Klaus Liebscher.
In an exclusive interview with Reuters, Liebscher said no room exists to cut euro zone interest rates, adding that he is not ruling out tightening in the region.
The euro has jumped 8 percent to the dollar so far this year on the view European interest rates will stay put until later this year, while the U.S. Federal Reserve is seen as cutting rates further from the current 2.25 percent.
Further U.S. cuts would help to keep euro zone rates significantly above rates in the United States, keeping the euro's yield appeal intact.
Still, given the euro's ferocious gains in the past few months -- the euro sailed through $1.50 only two months ago -- analysts said the market was taking a breather ahead of $1.60.
Some market participants said euro selling would likely be short-lived, as ongoing inflation pressures will prompt the ECB to hold rates at 4 percent at least through autumn.
But Deutsche Bank strategist Binky Chadha said in a research note he sees "more appreciable slowing" in the euro zone from the second quarter and beyond as the impact of the global credit crisis takes hold. Chadha says the dollar would find a bottom in the first half of 2008 and the euro would turn lower in the second half this year.
But analysts cautioned that while U.S. bank earnings this quarter have not been as dreary as some had been expecting, figures showed that the credit crisis is far from over, which many believed would keep the U.S. currency under selling pressure.