The euro held its ground against the dollar and hit a seven-month high against the yen ahead of the European Central Bank's monthly policy meeting on Thursday, following recent hawkish comments from ECB officials.
Interest rate differentials are holding sway in currency markets, with speculation of rate rises to come in the US and the euro zone contrasting with expectations that rates in Japan will stay near zero for a while.
"The market hasn't wanted to go short of the euro going into the ECB meeting, so we are seeing a mismatch in the dollar's reaction after the Fed, with it holding up well against the yen and Antipodeans," said Paul Mackel, currency strategist at ABN Amro.
The Fed increased its funds rate to 4 percent on Tuesday and analysts see it climbing to 4.5 percent or higher next year, just as they increasingly see the ECB raising rates from a record low 2 percent by the end of this year or early in 2006.
Investors are looking to the ECB's policy meeting and the subsequent news conference to see whether the central bank gives any hint on its next move and if ECB President Jean-Claude Trichet continues with warnings for vigilance on inflation.
"The market is pricing in a 50-50 chance of a euro zone rate hike in December, and if the ECB wants to raise rates then, it will have to signal that tomorrow," said Adarsh Sinha, currency strategist at Barclays Capital.
The dollar hit 2-year highs against the yen for a third straight day, rising as far as 116.99 yen, a gain of a quarter percent on the day, but just shy of 117 where traders said there was talk of options barriers.
The euro earlier hit 140.68 yen, its highest since mid-March and was trading at 140.32 at 1255 GMT, up slightly on the day.
The euro was slightly lower on the day against the dollar at $1.1992, shrugging off setbacks this week to the possibility of a coalition government in Germany.