The dollar vaulted to its highest level against the yen in over five months on Monday as investors bet higher interest rates would continue to support the US currency. The greenback's resilience in the face of disappointing US payrolls data on Friday cheered dollar bulls who seized on other figures - notably rising wages and raw material costs - showing building inflationary pressure in the US economy.
Hawkish weekend comments from one of the Federal Reserve's top policymakers also helped the dollar, lifting it above 108 yen for the first time since October and bringing its gains to three yen in as many weeks.
"You can make an argument to buy dollars or sell dollars on the data, but investors are going for yield and this is why the dollar is outperforming," said Neal Kimberley, head of FX sales at Bank of Tokyo-Mitsubishi in London.
The dollar was also up 0.2 percent at $1.2885 to the euro.
The dollar has enjoyed broad-based gains since the Federal Reserve suggested two weeks ago that it could raise interest rates faster than the current moderate pace if inflation heated up.
St Louis Fed President William Poole reinforced this message on Saturday, saying US growth was strong and the bank needed to confront the risk of higher inflation.
The Fed has raised rates by a quarter percentage point seven times since June, bringing its key funds rate to 2.75 percent. The dollar attraction was underscored by further economic gloom from the eurozone.
The European Commission on Monday downgraded its eurozone gross domestic product forecasts, saying high oil prices and the euro's recent strength meant growth in the 12-nation bloc was likely to be only 1.6 percent this year. It had previously forecast growth of 2 percent.
Analysts said the downgrade was not unexpected following recent weak data, but may make it harder for the European Central Bank to justify raising interest rates.
"The overall growth outlook shows the ECB's rattling on interest rates is inappropriate," said Philip Shaw, economist at Investec.
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