The dollar jumped on Thursday after Treasury Secretary Tim Geithner suggested major currencies were roughly in alignment, while stocks fell as investors digested data showing China's growth.
In an interview published in the Wall Street Journal on Thursday, Geithner suggested that he saw no need for the dollar to sink further against the euro and the yen, causing the dollar to spike half a yen and climb rapidly against the euro.
The dollar rose as far as 81.84 yen from about 81.00 yen before Geithner's comments came out while the euro fell 0.6 percent in a matter of minutes as the market, taking the comments to imply that the dollar did not need to fall further, covered dollar short positions.
By late morning, however, it pared some of its early gains, and the dollar index (.DXY) against a basket of major currencies was up 0.2 percent.
The drop in the yen, which is still near 15-year highs against the U.S. currency, briefly pulled Japan's benchmark Nikkei (.N225) out of negative territory before slipping back 0.3 percent.
"The Nikkei rebounded strongly after the dollar jumped against the yen on Geithner's comments," said Takashi Ohba, senior strategist at Okasan Securities.
"This could have prompted active short-covering by foreign players who were detected selling Nikkei futures heavily the previous day."
The MSCI index of Asia shares outside of Japan also weakened slightly, shrugging off overnight gains on Wall Street as traders took profits after a strong run-up in September and early October.
Talk of competitive currency depreciation has flared ahead of a G20 finance ministers meeting this week and a G20 summit next month, as developed countries keep monetary policy extremely easy to shore up sluggish growth and as capital flows in search of better yields push up currencies in faster growing emerging economies.
"It's become a bit difficult to test the dollar's downside for now," said Katsunori Kitakura, chief dealer at Chuo Mitsui Trust Bank.
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