The dollar hit a more than six-year peak against the yen on Thursday on data showing U.S. jobless claims fell more than expected last week, while global equity markets rallied after the Federal Reserve renewed a pledge to keep interest rates low.
Leading British shares rose as investors bet Scotland would remain in the United Kingdom after Thursday's referendum.
A Thomson Reuters basket of 12 stocks listed on Britain's FTSE 350 index .FTLC, based in Scotland, has slowly risen over the last two weeks.
The dollar index .DXY, a gauge of the greenback's value against six currencies, climbed to its strongest in more than four years, supported by the Fed's interest rate forecasts that were higher than those projected in June.
But the index and the euro retreated after the British pound climbed 0.83 percent to $1.6408 versus the dollar on anticipation Scotland would remain in the UK. The pound last traded up 0.55 percent at $1.6364.
"The dollar will be in a consolidation phase in the short term after yesterday's sharp gains," said Greg Moore, senior currency strategist at RBC Capital Markets in Toronto.
The dollar rose as high as 108.96, the strongest since August 2008, and last traded at 108.75, up 0.35 percent.
The euro rebounded, rising 0.39 percent to $1.2915.
Wall Street rallied, with both the benchmark S&P 500 and Dow indexes setting new intraday highs.
The Dow Jones industrial average .DJI rose 94.86 points, or 0.55 percent, to 17,251.71. The S&P 500 .SPX added 7.68 points, or 0.38 percent, to 2,009.25 and the Nasdaq Composite .IXIC gained 24.63 points, or 0.54 percent, to 4,586.81.
In Europe, the FTSEurofirst 300 .FTEU3 index of top regional shares closed up 0.93 percent at 1,398.03. MSCI's all-country world index .MIWD00000PUS rose 0.23 percent to 428.48.
U.S. Treasury debt prices turned down, with investors driving some shorter-maturity yields to highs not seen since May 2011 after the Fed on Wednesday raised its forecasts for some interest rates.
Yields on two-year notes touched a high of 0.597 percent before settling back.
Yields on benchmark 10-year Treasury notes were up to 2.6290 percent on a price decline of 8/32.
The number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting a sharp slowdown in August job growth was probably an anomaly.
While other U.S. data on Thursday showed some weakness in home building and factory activity, the underlying trend remained supportive of solid economic growth.
Crude oil fell, pressured by ample supply, concerns about demand growth and a stronger dollar.
A strong dollar makes dollar-priced commodities such as oil more expensive for buyers using other currencies but tends to weigh on oil prices.
Brent LCOc1 settled down $1.27 at $97.70 a barrel, while U.S. crude Clc1 fell $1.35 to settle at $93.07 a day after dropping on government data that showed U.S. crude inventories rose 3.7 million barrels last week