The dollar neared a two-month peak against the euro and a 5-1/2 month high on the yen on Friday, strengthened by expectations that the dollar's interest rate advantage over other currencies will keep widening.
Traders used hawkish comments from U.S. Federal Reserve policymakers and a sharp fall in crude oil prices as reasons to pick up the dollar, though the currency has rallied in the past month even as oil prices surged to record highs.
"We saw yields in the U.S. pick up due to the sharp drop in crude oil prices and that is probably the key reason underpinning the move higher in the U.S. dollar," said Kris Bernie, foreign exchange strategist at National Australia Bank.
St. Louis Federal Reserve President William Poole said on Thursday the U.S. economy faced some "pretty obvious" risks of inflation and the central bank would react more vigorously to keep them under control.
His comments followed upbeat comments on the economy from Philadelphia Fed President Anthony Santomero, who noted the bank needed to remain vigilant on the inflation front.
The dollar was up 0.25 percent at $1.2820 per euro at 0745 GMT, moving closer to two-month highs around $1.2800 scaled earlier this week.
The dollar was also a touch firmer against the yen at 108.66, close to this week's 5-1/2-month peak of 108.90.
Bernie said markets could be quiet on Friday due to the funeral of Pope John Paul.