The dollar traded near its highest level in two months against the euro on Thursday as investors bet interest rate rises in the United States would bolster the U.S. currency's yield appeal in the future.
Wednesday's economic data releases showed sturdy core inflation, surging housing starts and plummeting jobless aid claims, which underlined expectations for steady increases in borrowing costs.
Many investors were also waiting for news on the U.S. government's fiscal plans, which could help the dollar if solid deficit tightening measures are introduced.
"The dollar is generally firm," said Aziz McMahon, currency strategist at ABN AMRO in London.
"Interest rates are an issue. Also, investors are wondering whether there could be a temporary respite in the dollar's structural negatives if there are cuts in the fiscal deficit."
At 4 a.m. EST the dollar traded steady on the day at $1.2990 against the euro, a touch below Wednesday's two-month high of $1.2962.
It has already gained seven cents since hitting a record low against the euro in late December at $1.3667.
But many analysts still believe it could return to its long-term declining trend later this year, if there no signs of sustainable improvement in the growing U.S. current account deficit.
The dollar was 0.2 percent higher at 103.07 yen and slightly stronger against the British pound and Canadian dollar.