The greenback also got a lift from a U.S. government report Friday that showed the number of jobs lost in December were slightly better than expected despite unemployment rising to 7.2%.
At 4:15 p.m. ET, the dollar was up 0.77% against the 15-nation euro, which was trading at $1.3373. Earlier in the euro was at $1.3476 - it's highest level since Dec. 12.
The ECB meets Thursday and is expected to cut its key interest rate by 0.5 percentage points to 2%.
Last week, the euro was sharply higher against the dollar. Anticipation that the U.S. employment report would be much worse than predicted drove the euro higher, said Tom Benfer, director of foreign exchange at Bank of Montreal.
"This week, everyone's focused on the ECB meeting," Benfer said. "It's weighing on the euro because it reminds investors of the dire straits of the global economy."
The greenback rose 2.09% against the British pound, which fell to $1.4824. Meanwhile, the Japanese yen lost 1.15% against the dollar, falling to ¥89.11. The yen hit a one-month peak versus the euro.
Friday's unemployment reportThe nonfarm payroll report released Friday showed the unemployment rate has risen to 7.2%, the highest in 16 years. The country lost 524,000 jobs in December, bringing 2008's total job loss to 2.6 million. That's the highest level since World War II.
Still, the losses were in line with forecasts. The median prediction of a survey by Bloomberg News was 525,000.
"Economists are more cautious (about data predictions) than the typical investor," said John Kicklighter, currency strategist at Forex Capital Markets. "When the numbers are in line with cautious people, it translates to 'better-than-expected' for the market."
November's unemployment report had caught economists "completely caught off guard, driving the estimates higher for December," Kicklighter said.
OutlookIn the short term, President-elect Obama's stimulus plan will likely have a positive effect on the greenback, Kicklighter said.
But longer term, the currency market will probably begin a slow shift away from the dollar, Kicklighter said. The greenback is widely considered a safe haven, and traders have been risk averse in recent months, driving up the buck.
Kicklighter added that investors have also been flocking to ultra-safe Treasurys, which must be purchased in dollars.
But low interest rates mean low returns, and restless investors' risk appetite will return when the economy recovers, Kicklighter said.
Investors tend to place their money in currencies of countries with a strong economy, and Kicklighter said he believes the U.S. is behind the euro zone and Japan on the road to recovery.
"That shift away from the dollar will be gradual, but the U.S. is not ahead on the recession curve," he said.
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