By James Ramage 

The dollar strengthened against the euro and the yen on Friday as comments by the Federal Reserve's second-highest-ranking official revived the possibility the central bank could raise interest rates in the coming weeks.

Fed Vice Chairman Stanley Fischer told CNBC the Fed would need to see how the circumstances surrounding China's currency devaluation progressed before determining whether to raise the benchmark, short-term interest rate from near zero--where it has been held since December 2008--at the central bank's September meeting.

Mr. Fischer's words anchored the final leg of the dollar's turnaround over a turbulent week, when growing concerns about the Chinese economy on Monday upended many consensus currency trades and fueled a steep plunge in the dollar against the yen, euro and Swiss franc.

"He clearly signaled that a September rate hike is still on the table," said Vassili Serebriakov, currency strategist at BNP Paribas. "It sends the message that the Fed is not overreacting to the latest financial developments and that there's still time to look at the data and at what markets are doing."

In response, the dollar advanced to its highs for the day. The dollar gained 0.5% against the common currency, as one euro bought $1.1190 in late-afternoon trade, about where the pair stood on Aug. 20. The dollar increased 0.4% versus the yen to Y121.46, and has regained much of the 3% in value it lost earlier in the week.

Mr. Fischer spoke while attending the annual economic symposium in Jackson Hole, Wyo., with other central bankers. His comments joined a chorus of Fed officials over the week who have discussed the improving U.S. economy and the turbulence rippling through global financial markets.

Upbeat U.S. economic data over the week, underscored by numbers for second-quarter growth, which rose at a 3.7% rate, have helped the dollar. Investors had piled into the U.S. currency over much of the past year in the belief that the U.S. economy would strengthen faster than other regions, encouraging the Fed to raise borrowing costs long before most other central banks.

Higher U.S. rates would enhance the dollar's allure, as they would boost returns on assets denominated in the currency.

Many investors have pushed back their rate expectations into late 2015 and even into next year. But most still like the dollar's prospects over the coming year.

"We think the dollar uptrend is still on," Mr. Serebriakov said. "If the Fed doesn't hike until December, the dollar may be in for a slow period against the [euro and the yen] for the next couple of months."

Write to James Ramage at james.ramage@wsj.com

(END) Dow Jones Newswires

August 28, 2015 16:34 ET (20:34 GMT)