The dollar rose to a 12-week high against the yen and a two-week high against the euro on expectations economic growth in the US will be stronger than in Japan and Europe.
The US currency had its biggest gain against the yen in seven weeks after a Japanese policy maker indicated the government may sell the currency to weaken it in a bid to boost a sputtering export-led recovery. Demand for euros weakened as European stocks tumbled for a second day.
"The dollar has strengthened because Europe and Japan have slowed down in the last couple of weeks," said Matthew Ellis, an analyst at Wachovia Corp in Charlotte. "The US is seen as the main engine of growth in the world economy."
Against the yen, the dollar rose to ?121.80 at 4:20pm in New York, the highest since June 20, from ?120.14 yesterday. It strengthened to US$0.9716 per euro from 98.15 yesterday.
For the week, the dollar rose 2.7 percent against the yen, its third weekly gain in four. Against the euro, it rose 1.1 percent.
Some investors sold yen, driving it down for an eighth day in nine, after Haruhiko Kuroda, vice finance minister for international affairs, said selling yen "in a massive way" may help reverse deflation in Japan and boost exports.
"Kuroda's comments were the most damaging to the yen; he basically said the only way to save Japan is to weaken the yen further," said Jeremy Fand, a strategist at Friedberg Mercantile Group, with US$800 million in assets.
Sales by the Bank of Japan would add to the 4 trillion yen it sold over seven days in May and June, a record for one quarter, to weaken it and make Japanese manufacturers more competitive in export markets.
Economic reports today provided more evidence that the US recovery, while slow, is stronger than those in Japan and Europe, luring investment to the world's biggest economy, analysts said.
US retail sales rose 0.8 percent in August, more than the 0.5 percent gain forecast by economists, a government report showed, while the University of Michigan's consumer confidence index unexpectedly fell this month to 86.2 from 87.6.
The US economic data "probably on balance was good news," Fand said.
The US economy will grow 2.3 percent this year, according to a Blue Chip Economic Indicators survey, while growth in the 12 nations using the euro is likely to fall short of 1 percent, the European Commission said.
Citibank, the biggest trader in the US$1.2 trillion-a-day currency market, lowered its forecasts for the euro on expectations European growth will falter, prompting the European Central Bank to lower interest rates. Citibank cut its three-month forecast for the euro to 98 cents from US$1.03 and its six-month forecast to US$0.96 from US$0.99.
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