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NEW YORK (Reuters) - The dollar climbed to a 14-year high on Tuesday as Federal Reserve Chair Janet Yellen's comments on jobs reinforced the notion of faster U.S. interest rate hikes next year than had been expected.
In light trading, the greenback strengthened against major currencies with the rise in U.S. Treasury yields after Yellen said on Monday that the U.S. labour sector was at its most robust in almost a decade, suggesting wage growth is picking up.
"It's a bit yield-driven, but flows are extremely light," said Ian Gordon, G10 currency strategist at Bank of America Merrill Lynch in New York.
The dollar index, which gauges the greenback's value against a basket of currencies, was up over 0.1 percent at 103.31 after hitting 103.65, its highest since December 2002.
The benchmark 10-year Treasury yield was up more than 2 basis points at 2.562 percent.
The dollar rally and bond market sell-off since the Nov. 8 U.S. election have also been stoked by bets that U.S. President-elect Donald Trump's administration would cut taxes and increase fiscal spending, which would result in higher U.S. growth and inflation.
The greenback rebounded against the yen after the Bank of Japan left monetary policy unchanged as expected, disappointing some traders who had thought it would hint at dialing back on monetary stimulus.
The BOJ on Tuesday affirmed its twin targets of minus 0.10 percent interest on some excess reserves and a zero percent 10-year government bond yield.
The greenback was up 0.6 percent at 117.72 yen , within sight of a 10-1/2-month high of 118.66 yen set last week.
On Monday, the yen jumped on safe-haven demand following deadly attacks in Turkey and Germany.
The Turkish lira was steady at 3.5300 liras per dollar, stabilising on the heels of Monday's loss resulting from the killing of a Russian ambassador in Ankara.
Worries about major votes across Europe in 2017, together with prospects of a modest regional growth, put more downward pressure on the euro, analysts and traders said.
The single currency dipped 0.1 percent to $1.0385 after hitting $1.0350, its weakest versus the greenback since January 2003, Reuters data showed.
As the euro and yen face headwinds, demand for the dollar will likely persist.
"There continues to be support for the dollar. There are signs of short-term exhaustion, but the momentum is there," said Katie Stockton, chief technical strategist at BTIG in New York.
Reporting by Richard Leong; Additional reporting by Jemima Kelly in London; Hideyuki Sano in Tokyo; Editing by Richard Chang