The dollar hit a three-week high against the yen on Thursday, on course for a fourth straight day of gains after a strong ADP job number in the previous session broke 10-year U.S. government bond yields out of a long-held range.
With eyes in Europe fixed on a meeting of the European Central Bank expected to deliver a modestly more upbeat verdict on the Eurozone economy—but no policy action—the euro was also marginally stronger at $1.0550.
The dollar surprised many analysts last week by struggling as money markets flipped to back a rise in official U.S. interest rates this month, and a number point to muted moves in 10-year yields as one element holding the currency back.
It broke above 2.52 % for the first time this year on Wednesday and was trading at close to 2.58 % in early trade in Europe on Thursday. That helped the dollar jet as much as half a % higher to 114.94 yen before settling.
Citi currency strategist Josh O'Byrne said expectations of a steady recovery in Europe were also playing a role in those moves, removing one of the factors that have dampened benchmark bond yields globally.
"We broke 2.52 % yesterday, which was the high of the range in recent weeks and certainly there seems to be some more optimism (around the dollar)," he said.
"Less dovish expectations on the ECB are helping diminish some of the pressure on long-end yields in the U.S. too and that is having more influence on the dollar against some of the higher yielders and dollar-yen."
By 1138 GMT, the dollar was trading 0.2 % higher at 114.61 yen. The index of its broader strength against a basket of currencies was roughly steady just above 102.
The ECB is set to keep policy on hold on Thursday as it casts a cautious eye ahead to high-risk elections in the Netherlands and France during an upsurge in populist, anti-establishment sentiment.
But there is growing speculation in markets that improving growth and rising inflation will allow it to begin to take a step backward later this year from the emergency stimulus for the economy that has dominated since the 2008 financial crash.
A German banking association said that the bank should begin on Thursday to prepare the ground for an exit from its ultra-loose monetary policy.
Analysts from Goldman Sachs said the bank will have to acknowledge the better activity data in its growth and inflation forecasts.
"As such, we see a higher risk than usual that the ECB strays off message at this meeting by discussing stronger activity rather than reiterating its commitment to current policy," they said.
"If that were to happen, euro pricing would likely respond."
Oil-and commodity-linked majors including the Canadian, Australian and New Zealand dollars and the Norwegian crown all hit multi-week lows after supply issues provoked a five-% slump in oil prices on Wednesday.
"The Canadian dollar has been a victim of hawkish interest rate expectations in the United States, lower oil prices and a Bank of Canada that has expressed concern over the outlook for the Canadian economy," analysts from currencies exchange LMAX said in a morning note.
"Wednesday’s stellar U.S. ADP print and another big slide in oil have opened fresh 2017 lows."