The dollar climbed toward a two-month peak against the euro on Friday on expectations that the dollar's interest rate advantage over other currencies will keep widening, possibly at a faster pace.
Traders used a sharp fall in crude oil prices as another reason to pick up the dollar, though the currency has rallied in the past month even as oil prices surged to record highs.
Unexpectedly strong machinery orders data from Japan failed to dent the dollar's rise.
"Dollar sentiment is pretty strong," said Hideaki Furumaya, forex manager at Trust and Custody Services Bank in Tokyo. "Until something comes along to outweigh the prospect of higher U.S. interest rates the dollar should keep edging higher."
At 0205 EDT, the euro was at around $1.2820, down about 0.3 percent on the day, and in sight of the two-month low of $1.2800 hit on Tuesday. Furumaya said the dollar would likely challenge that level during European trading hours.
The dollar was little changed at 108.65 yen, not far from a five-month peak of 108.90, also reached on Tuesday.
The U.S. currency dipped to the day's low of 108.53 yen after data showed Japan's core private-sector machinery orders, a gauge of trends in capital spending, rose 4.9 percent in February from a month earlier, well above market expectations.
But it soon recovered those losses.
The dollar has gained around six percent against the yen so far this year, as rising U.S. interest rates helped outweigh concerns about the large and growing fiscal and current account deficits -- the drivers of a three-year decline in the currency.
Against the euro it has sprung back almost seven percent from a record low of $1.3670 struck in late December.