The yo-yo moves overnight prompted analysts to draw parallels with the "flash crash" in October which briefly knocked almost 10 percent off the value of Britain's pound. As then, the shift came in the period at the start of the Asian day when markets are at their thinnest and the bulk of liquidity available tends to come from the automated computer programmes run by banks and other major houses.
"It looks like it was a combination of thin markets, some year-end rebalancing against the dollar and covering of shorts above $1.05," Alvin Tan, a strategist with Societe Generale in London, said. "The fact that banks have reduced the provision of liquidity given regulatory restrictions contributes to this kind of move and makes it slightly more structural. These kinds of crashes are going to be with us for some time."
Further gains for the dollar are one of the big consensus plays for investors going into 2017, although signs of doubt have appeared in recent weeks, with analysts beginning to wonder how much appreciation a Donald Trump White House will tolerate.
Despite all the gains for the dollar since Trump's victory in November, it is up just 3 percent this year against the euro. A number of major banks have predicted a test of parity early next year. The dollar index, which tracks the greenback against a basket of six major rivals, also slipped half a percent to 102.18, down from a 14-year high of 103.65 hit on December 20 and up 3.8 percent on the year.
Similarly, although the yen has fallen 15 percent against the dollar in the past three months on expectations Trump will boost US public spending and inflation, it is still up almost 3 percent for the year. "Much depends on how the Trump presidency and the Chinese economy work out," said Marshall Gittler, chief market analyst for retail broker FX Primus. "In general, I expect the dollar to continue to gain and for the yen and pound to weaken further."
China's yuan looked set to end the year down around 7 percent against the dollar, making it the worst performing Asian currency. Beijing announced late on Thursday it would nearly double the number of foreign currencies in a basket that is used to set the yuan's value.
Analysts said the change was in line with the central bank's intention to discourage investors from exclusively tracking the yuan's fluctuations against the dollar, but it would have limited impact on the Chinese currency, which is widely expected to weaken further against the greenback in 2017.