The currency was also near a two-week high against the euro as a rally in financial stocks prompted traders to increase bets the Federal Reserve will raise interest rates. The euro weakened after German business confidence fell to the lowest level in almost three years. The New Zealand dollar dropped to a six- month low after the country's central bank unexpectedly cut rates for the first time in five years.
The dollar traded at 107.73 yen at 9:06 a.m. in London, from 107.90 yesterday. It earlier reached 107.99, the highest since June 26. The U.S. currency was at $1.5665 per euro, after yesterday touching $1.5652, the strongest since July 9. The yen traded at 168.77 per euro from 169.36, after yesterday reaching a record low of 169.96.
The euro weakened for a third day against the dollar after the Ifo institute said its business climate index declined to 97.5, the weakest since September 2005, from 101.3 in June. Economists expected a drop to 100.1, according to the median of 40 forecasts in a Bloomberg News survey
The Dollar Index on the ICE market, which tracks the greenback against the currencies of six U.S. trading partners, rose for a third day, to 72.902, the strongest since July 9.
Crude oil for September delivery was at $124.54 a barrel, following a 2.7 percent decline yesterday. The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.
The House of Representatives yesterday approved a rescue package that gives Paulson authority to buy shares in and lend funds to Fannie Mae and Freddie Mac, and provides for a federal agency to insure refinanced home loans. The bill has still to pass through the Senate.
The dollar fell to a record $1.6038 per euro on July 15 as traders speculated that Fannie and Freddie, which own or guarantee almost half of the $12 trillion in outstanding U.S. home loans, would be forced to seek a bailout.