Hawkish remarks by Federal Reserve Chairman Ben Bernanke sparked speculation of a rate hike in the U.S. later this year, driving the dollar upward to a three-month high against the yen in Asia on Tuesday.
The greenback also surged versus the euro despite growing expectations that the European Central Bank will raise its policy rate next month.
Following Bernanke's speech in Boston during early Asian trading time, the U.S. currency rose to a session high of 106.83 versus the yen, its highest level since Feb. 27, compared with 106.29 in New York late Monday. It was trading at 106.76 Tuesday afternoon. Against the euro, it climbed to $1.5581 from $1.5627.
In his speech, Bernanke issued a strong warning on inflation, saying recent energy price gains have raised inflation risks and that the Fed "will strongly resist" any erosion in long-term expectations for prices.
His caution on U.S. inflationary pressures quickly fueled speculation that a rate hike by the U.S. central bank is around the corner and prompted them to buy back the dollar across the board.
"Recent remarks from U.S. officials clearly suggest that they are very concerned about inflation and will grapple with the problem down the road," said Keiichi Iguchi, a dealer at Resona Bank. "As long as inflation expectations linger in the U.S., investors could continue to buy the dollar."
However, some traders are skeptical, saying the outlook for the world's biggest economy and its financial system remains uncertain.
"Economic indicators have yet to show clear signs that the U.S. economy will pick up soon and higher crude oil prices may worsen economic conditions (in the country) further," said Yuzo Sakai, foreign exchange manager at Tokyo Forex and Ueda Harlow. "It's early to think that the dollar will keep rising."
The dollar was mixed against other Asian currencies. It dropped to 1,022.8 South Korean won, while climbing to 30.341 Taiwan dollars.