The euro eased to its weakest level since late July and was last at $1.14282. Sterling bought $1.3316. The dollar index, which measures the United States currency against six rivals, was 0.16 percent higher at 100.71.

The recent barrage of rate hikes and hawkish rhetoric from major central banks has taken center stage in currency markets as the US-Israeli conflict with Iran drives oil prices higher and fans inflation worries.

Investors are now anticipating further tightening from central banks, with Federal Reserve officials flagging the possibility of more hikes if inflation does not ease.

"The dollar's support from rates looks durable, but futures already price more tightening than the Fed's own projections, so the dollar now needs the data to confirm it," said Kieran Williams, head of Asia FX at Intouch Capital Markets.

"The oil support is weaker, with Brent at a two-week low on [Strait of] Hormuz reopening reports," he said, referring to Iran raising the prospect of reopening the critical waterway.

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Oil markets remain in the spotlight with Brent crude futures slipping to $98.46 per barrel on hopes that diplomacy at the UN General Assembly could pave the way for a resolution to the seven-month-long Middle East war.

Brent has risen 37 percent since the conflict erupted at the end of February, but has declined for six straight sessions amid easing supply concerns and rising optimism of a breakthrough.

US President Donald Trump warned that he could annihilate Iran if there is no deal to end the war, but also suggested an agreement could come soon amid the diplomatic efforts at the UN.

"The good news is that oil prices have moderated somewhat from the highs but the path forward remains unclear given the lack of clarity around a possible resolution of the conflict," said Michael Wan, a currency analyst at MUFG.

Investors are also waiting for a high-stakes meeting between Trump and Chinese President Xi Jinping as the two leaders seek stability in a relationship under pressure over wide-ranging issues.

The Japanese yen was at 157.58 per US dollar as traders remain wary of the threat of intervention after markets judged the Bank of Japan's rate hike to a 31-year high last week as insufficiently hawkish.

Two dissenting votes and the absence of a clear hawkish signal were enough to fuel doubts over how quickly the BOJ will tighten policy, particularly after the Fed raised rates last week and flagged further hikes ahead.

Japanese markets were closed for a holiday Wednesday, and the low liquidity period was seen by analysts as an optimal time for authorities to intervene if needed.

"The BOJ hike didn't narrow the [yield] gap, because the Fed hiked by the same amount two days earlier, so the lean is still higher," said Intouch's Williams.

"160 [per US dollar] remains the risk, but officials have reportedly moved away from telegraphing intervention and from any fixed level, so the cap could come earlier and in other forms."

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