Investors have taken heart from recent U.S. economic reports that show a 7.1 percent rise in retail sales in October, the strongest surge on record, and a continued fall in the number of weekly jobless claims.

The University of Michigan's monthly survey found that consumer sentiment bottomed out in August, raising expectations that American consumers will return to shopping malls and showrooms over Christmas.

There has, however, been some negative news.

The U.S. Federal Reserve said that output from U.S. factories, mines and utilities fell 1.1 percent in October, the 13th consecutive monthly fall, while U.S. industry operated at a rate 25.2 percent below its potential, the highest level of capacity underutilization since 1983.

Despite this, investors are counting on better days ahead.

The dollar has gained ground against other currencies amid expectations of an early end to the U.S. military campaign in Afghanistan, and the market is now looking for clues on whether the Fed will decide to further ease its grip on credit at its policy-setting committee meetings in December and January.

If this proves to be the case, the currency market will look to a robust economic recovery in the second half of next year.

In Japan, on the other hand, recovery signs are nowhere in sight.

Credit-rating agencies' reported moves to review ratings on Japan's sovereign debts for possible downgrading have stoked fears of financial market instability.

Also working in the dollar's favor is speculation over U.S. firms' repatriation of money to their home market later in the year.

A lack of profitable financial products in Japan, on the other hand, is expected to entice Japanese investors to switch away from yen-based assets and into dollar-based investment vehicles.

In short, the dollar appears likely to remain under upward pressure through much of the rest of the year.