During European late morning trade, the dollar rallied against the yen, with USD/JPY surging 1.46% to 97.85.
The dollar strengthened across the board after Fed Chairman Ben Bernanke said the bank could begin tapering its USD85 billion-a-month asset purchase program later this year and wind it down completely by the middle of 2014 if the economy picks up as the central bank expects.
The dollar was sharply higher against the euro, with EUR/USD dropping 0.79% to 1.3189.
The euro came under pressure after data showed that manufacturing activity in Germany contracted more than expected in June.
Germany’s manufacturing purchasing managers’ index fell to 48.7 in June compared to expectations for a reading of 49.8 and down from a final reading of 49.4 in May.
Activity in Germany’s services sector rose to a four-month high, with the services PMI improving to 51.3 from 49.7 in May.
The euro zone manufacturing PMI rose to 48.7 in June from a final reading of 48.3 in May, but remained well below the 50 level that separates contraction from expansion.
The bloc’s services PMI rose to a 15-month high of 48.6 from 47.2 in May, above expectations for an increase to 47.5.
Elsewhere, the greenback was higher against the pound, with GBP/USD down 0.23% to 1.5448.
The pound pared back losses after official data showed that U.K. retail sales climbed 2.1% in May, outstripping expectations for a gain of 0.8% and were 1.9% higher from a year earlier.
The dollar was stronger against the Swiss franc, with USD/CHF climbing 0.67% to 0.9343.
The Swiss National Bank kept its benchmark interest rate unchanged at zero on Thursday and said the Swiss franc remains “high”.
The bank also maintained the minimum exchange rate floor at 1.20 per euro saying the measure is “important in order to avoid an undesirable tightening of monetary conditions.”
The greenback was sharply higher against its Australian, New Zealand and Canadian counterparts, with AUD/USD dropping 0.98% to 0.9202, NZD/USD tumbling 1.63% to 0.7769 and USD/CAD advancing 0.83% to 1.0357.
The New Zealand dollar came under heavy selling pressure earlier Thursday after official data showed that the economy expanded 0.3% in the first quarter, undershooting expectations for a 0.6% increase.
Meanwhile, data on Thursday showed that China’s HSBC preliminary manufacturing PMI fell to a nine month low of 48.3 in June from 49.2 in May as new orders fell, indicating that the slowdown in manufacturing is worsening.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.85% to 82.16.
The U.S. was to release the weekly government report on initial jobless claims, in addition to data on existing home sales and the Philly Fed manufacturing index later in the trading day.