The dollar gained against the euro and yen Friday as rising equity markets calmed investors, prompting a few to edge back into relatively risky carry trades.
In carry trades, market players use low-yielding currencies such as the yen to finance purchases of assets offering higher returns. Those trades are more attractive when stock markets rise, supporting investor risk appetite.
The dollar's gains were bolstered by the preliminary reading of the Reuters/University of Michigan consumer sentiment index for January which came in higher than expected.
"It's a dose of good news, and any dose of good news in this environment is welcome," said Robert Fullem, vice president of corporate FX sales, Bank of Tokyo-Mitsubishi UFJ in New York of the consumer sentiment report.
The euro was little changed against the dollar. Against the yen, the dollar rose.
The consumer sentiment index posted at 80.5 for the early part of the month, compared with the median forecast of 74.5, and up from the final reading of 75.5 in December.
Separately, a closely watched index of future economic activity dropped for a third straight month in December, implying growth will remain sluggish and faces rising risks of weakening, the Conference Board said on Friday.