The dollar rose against a basket of currencies for a third day on Thursday as traders closed out profitable bets against the greenback before Friday's U.S. payrolls report which may confirm the view the Federal Reserve will not raise interest rates soon.
The dollar index, which measures the U.S. dollar's value versus six currencies, fell to its lowest in over 15 months on Tuesday, led by the yen's surge partly on skepticism about whether Japan policy-makers would intervene to slow its rise.
"We are seeing some short-covering lifting the dollar against most major currencies. You can largely attribute it to tomorrow's nonfarm payrolls report," said Ron Simpson, director of currency research at Action Economics in Tampa, Florida.
Trading volume was thin as Japanese markets were shut for the Golden Week holiday. They will reopen on Friday.
Economists polled by Reuters forecast U.S. employers likely added 202,000 workers in April following a 215,000 increase in March with the jobless rate holding at 5.0 percent.
Steady monthly job gains have yet to prompt a pickup in wage growth, which remains a worry for the Federal Reserve.
In the absence of higher wage growth, together with sluggish global demand, Fed policy-makers will likely refrain from raising policy rates at its June 14-15 policy meeting, which would renew bets the dollar would fall, analysts said.
The futures market implied traders see a 14 percent chance the Fed will hike rates in June, little changed from Wednesday, Reuters data showed.
The dollar index was last up 0.6 percent at 93.76.
The greenback was up 0.28 percent at 107.24 after hitting a 18-month trough on Tuesday. The yen has gained more than 15 percent against the dollar over the past six months.
Japanese authorities have said they could step into the currency market to halt the yen's rise if needed, but investors are skeptical as to whether such intervention would have a lasting impact.
The euro also weakened against the dollar. It fell 0.8 percent to $1.1399, pulling further away from a 16-month high set on Tuesday.
The safe-haven Swiss franc hit an eight-week low against the euro as investors regained some confidence, buying stocks, oil and other risky assets.
Among other major currencies, the flat after data showed the country's trade deficit shrank sharply in March. The Aussie rebounded from a seven-week low of $0.7447 in the wake of a rate cut by the Reserve Bank of Australia.