The dollar paused for breath today after staging a broad-based rally in New York trade after the Federal Reserve raised interest rates and reaffirmed its bullish view of the US economy.
The US central bank raised rates for the second time in six weeks last night, lifting target borrowing costs by a quarter-point to 1.50 per cent.
But the dollar struggled to extend its rally today as investors waited to see whether upcoming data would support the Fed's view that the US economy would bounce back strongly after a temporary slowdown caused by higher energy costs.
"There was an initial bounce in the dollar because some people had been betting on a no-change rate decision," said Mr Gavin Redknap, economist at Standard Chartered.
But he added that the case for a further rate rise next month would depend on the strength of forthcoming economic data.
"The Fed did not change its promise to raise rates at a measured pace, but I do not think this necessarily signals they will move again in September," said Mr Redknap.
The dollar stood at $1.2230 to the euro in early European trade, up almost a cent from lows hit last night ahead of the Fed's announcement. The dollar was firm at around 111.25 yen compared with 110.75 yen prior to yesterday's US rate rise.
Buying by hedge funds lifted the dollar to session highs of 111.44 yen in Asia, but momentum petered out due to a lack of follow-through buying, dealers said.