The dollar quickly rallied across the board, an unusual reaction for a currency that since 11 September 2001 attacks has lost value on terrorism fears.
The gains were largely driven by speculative accounts unwinding bets against the dollar.
A broad range of market participants jumped on board the move, which was reflected most acutely in the dollar’s advance against high-yielding currencies.
The pound and Australian and New Zealand dollars have been among the biggest winners in the dollar’s decline in recent months, so had most ground to yield on Friday.
The dollar’s strength did not only rock currency markets. It sent prices of bonds, gold and oil sharply lower and rendered US inflation data for January, released on Friday, largely irrelevant.
The question now facing currency watchers is whether the dollar’s move has enough momentum to take it higher.
“I think it is mostly systems and short-term guys, but this move will definitely force some longer-term accounts to reevaluate their positions,” Waiman Leung, vice-president at Credit Suisse Asset Management in New York said.
In raising its terror alert, Japan is mobilizing heavily armed police around airports, nuclear plants and government offices to guard against a possible “terror” attack.