The dollar held on to its biggest gain in more than two months against major peers on Friday as a rise in US yields triggered some unwinding of bearish bets on the currency.

The greenback bounced off a nearly three-year low, with traders taking profits against the euro in particular, following a slide in the dollar index of nearly 7 per cent in 2020 and as much as 0.9 per cent in the new year amid expectations of US fiscal stimulus. Democrats won effective control of the Senate this week, giving President-elect Joe Biden the scope to push through more spending, which analysts say will be negative for bonds and the dollar.

The benchmark 10-year Treasury yield topped 1 per cent on Wednesday for the first time since March. Dollar "positioning is stretched and the backup in US yields has some investors nervous," TD Securities analysts wrote in a client note.

"The (dollar's) move, however, is more consolidative in tone than it is a sign of a bigger correction." Investors now await US nonfarm payrolls later on Friday for clues on whether significantly more stimulus will be needed to keep the economic recovery alive.

The dollar index was little changed at 89.841 in early Asian trading, after dipping to an almost three-year low of 89.206 on Wednesday. It rose more than half a per cent on Thursday, but remains on track for a weekly decline. The euro was mostly flat at $1.22685 following Thursday's 0.5 per cent drop.

The riskier Aussie dollar was also little changed at 77.695 US cents after sliding 0.5 per cent in the previous session. The greenback bought 103.820 yen after gaining 0.7 per cent to close at 103.830 in New York. Bitcoin traded 0.2 per cent lower at $39,418 after smashing through $40,000 for the first time on Thursday and soaring as high as $40,420. The digital currency crossed the $20,000 milestone less than a month ago, on December 16, and has rallied more than 700 per cent since March.