The dollar stayed in sight of a five-month high against the yen and two-month peak versus the euro on Wednesday due to the specter of higher short-term interest rates in the United States.
The U.S. currency rose to 108.90 yen on Tuesday, its highest level since Oct. 19 and up more than 5 percent in less than a month. But the perception that the rally may have gone too far too fast prompted traders to lock in gains.
Still, many traders say that investors will continue to flock to the dollar given expectations that the Federal Reserve would continue to tighten credit amid concerns that inflation will rise in a fairly robust U.S. economy.
"The dollar's rally has been so fast, so there may be some adjustments," said Takashi Toyahara, forex manager at Nomura Securities.
"The market is focusing on gaps in interest rates and economic fundamentals. The dollar's underlying trend will remain strong for now," he added.
As of 9:17 p.m. EDT Tuesday, the dollar fetched around 108.20 yen (JPY=), little changed from late U.S. levels.
Some traders said that profit-taking on Tuesday was also triggered by a ratings cut by Moody's on long-term debt at General Motor's Corp. to one notch above junk.