The dollar traded little changed against a basket of currencies on Wednesday as data showed the U.S. services sector expanded at its fastest pace in 10 years, supporting the view the Federal Reserve would raise interest rates in September.
The surprisingly strong reading on industries that account for more than two-thirds of the U.S. economy aligned with comments from Atlanta Fed chief Dennis Lockhart published on Tuesday. In an interview with the Wall Street Journal, Lockhart expressed support for the end of the Fed's near-zero rate policy next month.
Lockhart is a voter on the U.S. central bank's policy-setting committee this year. His reputed centrist view is seen in line with Fed Chair Janet Yellen's.
"The ISM services number was very good and that put a bid under the dollar," said Kathy Lien, managing director at BK Asset Management in New York.
The dollar index climbed to a 3-1/2 month peak of 98.128 in overseas trading in the wake of the Lockhart interview. It was little changed on the day at 97.92.
The greenback dialed back from its initial gains after Fed Governor Jerome Powell told CNBC television he has not decided on a rate "lift-off" in September.
With further jobs gains seen critical for the U.S. central bank's decision to raise interest rates, July private hiring figures from payrolls processor ADP raised doubts about the strength of the government's jobs reading due on Friday.
ADP said U.S. companies hired 185,000 workers, the fewest since April.
Analysts polled by Reuters forecast a 223,000 jobs increase in government payrolls.
"There is a risk on the downside after the ADP number," Lien said.
The dollar's pullback was short-lived after the Institute for Supply Management said its services sector index rose to 60.3, its highest reading since August 2005.
The dollar hit a two-month peak against the yen at 125.015 on the EBS trading system before retreating to 124.880 yen, up 0.4 percent from Tuesday.
The euro bounced in a tight trading range, last up 0.2 percent at $1.08990 and touched a two-week low of $1.0847 during Asian trading hours.
The dollar touched a 3-1/2 month high against the Swiss franc at 0.98220 franc after the ISM data. It added to earlier gains tied to news Switzerland slipped deeper into deflation, raising pressure on the Swiss National Bank to act next month.