The dollar jumped to a two-year high against the yen Thursday on expectations that Japan's new government will lower interest rates to boost the economy, weakening the yen.
The dollar rose to 86.02 Japanese yen late Thursday from 85.63 Japanese yen late Wednesday. The dollar rose as high as 86.13 Japanese yen, its highest point against the yen since Aug. 16, 2010.
The euro rose to $1.3240 from $1.3220 as traders awaited developments from budget talks in Washington.
Traders are worried that lawmakers won't reach a deal in time to avoid a series of steep tax increases and government spending cuts that are set to kick in at the beginning of next year unless the White House and Congress agree on how to reduce the budget deficit.
In other trading, the British pound fell to $1.6108 from $1.6130.
The dollar slipped to 0.9133 Swiss franc from 0.9135 Swiss franc.
The dollar rose slightly to 99.49 Canadian cents from 99.44 Canadian cents.
Currency trading was light Thursday. Many traders take the week off between Christmas and New Year's Day.