The dollar advanced against the yen and the euro on Friday as investors resumed pricing in the possibility that the Federal Reserve will begin to pare back its bond-buying program as soon as its September policy meeting.
Fed Governor Jeremy Stein on Friday highlighted September as a possible time when the U.S. central bank will need to consider reducing its 'quantitative easing' economic stimulus program.
Stein said the Fed's eventual decision to scale back its $85 billion in monthly asset purchases must be based on the overall economic progress since it launched the stimulus and not be "excessively sensitive" to the most recent economic data.
"Stein's remarks cannot be lightly dismissed and raise risks that some on the Committee may have already essentially decided on September," said Michael Feroli, economist at JP Morgan in New York.
"More generally, compared to remarks from Fed officials earlier this week, Stein's speech was less geared toward calming market perceptions of Fed policy and did less to question market pricing of the first rate hike."
(Read More: Data Clear Some Doubts Over Japan's Policies)
JPMorgan in the past had said that the first 'taper' from the Fed would be a close call between September and December. But since first-quarter U.S. economic growth numbers and potentially second-quarter figures could show low growth, the U.S. bank said the Fed could reduce easing in December.
The dollar got an added boost on Friday when a report showed U.S. consumer sentiment improved in late June, ending the month close to a near six-year high set in May, as optimism among higher-income families rose to its strongest in six years, a Thomson Reuters/University of Michigan survey showed.
Volume in dollar/yen surged to US$4.0 billion as of late afternoon trading in New York, while turnover in euro/dollar was US$4.3 billion.
For June, the dollar fell 1.2 percent against the yen, snapping eight straight months of gains against the Japanese currency, while the euro was little changed against the dollar.