NEW YORK The dollar climbed to an almost seven-week peak against the yen on Tuesday as easing tensions over Syria and encouraging economic data from China eroded demand for the safe-haven Japanese currency.
The yen also weakened to a 3-1/2-month low against the euro, while the higher-yielding Australian and New Zealand dollars gained on rising investor appetite for risk.
Syria accepted a Russian proposal on Tuesday to give up chemical weapons and win a reprieve from threatened U.S. military strikes. The diplomatic initiative marks a reversal after weeks in which the West appeared finally headed towards intervention in a two-and-a-half-year-old war.
Adding to the positive sentiment in financial markets, China reported stronger-than-expected industrial output and retail sales, reinforcing hopes the world's second-largest economy was stabilizing after slowing for more than two years.
"If the U.S. can indeed avoid a military confrontation in Syria, the downward pressure on dollar/yen could ease considerably and could push the pair toward the 100.50 level," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
The dollar was up 0.7 percent at 100.31 yen after climbing to 100.45 yen, according to Reuters data, the strongest since July 25.
The euro was up 0.9 percent to 133.08 yen, having reached 133.29 yen, the highest since late May.
The yen also weakened after minutes of the Bank of Japan's August policy meeting released on Tuesday showed members were confident that the central bank's aggressive monetary stimulus was helping lead to an economic recovery.
The dollar rose 0.3 percent versus the Swiss franc to 0.9342 franc but fell against the Australian and New Zealand dollars. The Aussie hit a near seven-week high and last traded at $0.9314, up 1 percent. The kiwi rose 0.7 percent to $0.8069.
Analysts said any moves in the U.S. dollar will likely be limited for now after disappointing jobs data last Friday fuelled uncertainty about whether the Federal Reserve will start scaling back stimulus this month. The Fed holds a policy meeting next week.
A Reuters poll on Monday showed economists expect the Fed to announce a modest reduction in its $85 billion monthly bond-buying program by some $10 billion.
San Francisco Federal Reserve Bank President John Williams said on Monday he has yet to make up his mind on supporting a reduction at the Fed's meeting next week.
However, he said he was "still 100 percent on board" with Fed Chairman Ben Bernanke's timeline for beginning to taper the bond-buying program later this year and ending it next year.
Whether the tapering begins this month or sometime afterward is less important than the fact that the Fed has an overall framework for reducing the program in place, he said.
"We will likely see a further consolidation in the dollar which remains weak after last week's softer payroll report. Markets will now look to next week's Fed meeting," said Marcus Hettinger, global FX strategist at Credit Suisse.
"They will probably taper but still remain quite cautious."
The euro was up 0.1 percent at $1.3269, still trading close to Monday's peak of $1.3280, its highest since August 29.
Strong technical support lies around $1.3220. Strategists, however, said the euro could suffer from a row in Italy over former leader Silvio Berlusconi, who has been convicted of fraud, which threatens to topple its ruling coalition government.
(Reporting by Nick Olivari and Wanfeng Zhou; Editing by James Dalgleish)