The dollar hit the year's highs against the euro and Swiss franc today and approached 2004 highs against the yen, maintaining its recent bull run on expectations of a pick-up in the long-dormant US jobs market.
A jump in the employment component of Monday's US Institute of Supply Management report bolstered expectations of a strong reading in Friday's non-farm payrolls.
Traders also said much of the dollar buying was technically driven short-covering, after the euro fell below key support levels versus the dollar yesterday.
"Technically, the euro move was extremely significant, now the onus is with the sellers," said Mr Ian Gunner, head of foreign exchange research at Mellon.
"Unless the ECB says there is no reason to cut rates and the payroll numbers are awful, we are heading for $1.18-1.20 in the next two to three weeks," he added.
Talk the European Central Bank might cut rates at its meeting tomorrow also hit the euro in the past week although the euro zone short term interest rate market has now more or less priced out an imminent rate cut, mainly because of the single currency's fall.
The euro fell to levels around $1.2150, its worst showing since mid-December, but recovered to $1.22 by 8:30 a.m., down slightly from the US close. Yesterday's loss of 2.35 cents was the single currency's biggest single-day loss in absolute terms since its launch five years ago.