U.S. consumer sentiment also rose in September to its highest in more than a year on more upbeat views on the domestic economy in the coming year, a survey released on Friday showed.
A drop in import prices, however, capped some of the dollar's gains. Import prices declined 0.9 percent in August, the largest drop since November 2013.
Some investors have also been taking profits on concerns that the market may have moved too far before next week's highly anticipated meeting of the Federal Open Market Committee, the Fed's policy-making body.
The dollar index, which measures the greenback against a basket of major currencies, was last down 0.08 percent at 84.227. It has risen for the ninth week, the most weeks the index has gained consecutively since 1997.
U.S. Treasury yields have also been adjusting to the prospect of higher rates in more volatile trading. The two-year yield was not far from a three-year peak of 0.59 percent.
The dollar touched a high of 107.39 yen, its strongest since September 2008, and last traded at 107.30, up 0.18 percent on the day.
U.S. dollar strength has also been due to a worsening picture in Europe and Japan. The European Central Bank last week cut rates to new lows and launched an asset purchase program to ward off deflation.
The Bank of Japan was also expected to launch new stimulus measures to address low inflation and a flagging economy.
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