The dollar edged close to a seven-month high against a basket of currencies on Thursday after minutes showed U.S. Federal Reserve policymakers had discussed strategies for withdrawing monetary stimulus.
The euro fell against the dollar, sliding towards a nine-month low hit earlier this week, while sterling came under selling pressure after data revealed a unexpectedly sharp deterioration in UK public finances in January.
Analysts said there were concerns that if countries such as Greece implemented the harsh fiscal measures needed to cut their debt this would weigh on euro zone growth and mean the European Central Bank would be slower to tighten monetary policy.
ECB tightening risks being delayed, and yield differentials are playing in favour of a lower euro/dollar, said Tom Levinson, currency strategist at ING.
The dollar was supported after Fed minutes on Wednesday revealed several policymakers wanted to begin selling securities relatively soon as the U.S. economy finds its footing, and by strong housing and industrial output data.
At 1054 GMT, the dollar index <.DXY> was up 0.2 percent at 80.498, a shade below the seven-month high of 80.748 hit late last week.
A weekly close above 80.43 would establish a near-term uptrend for the dollar. Charts show the next target at 81.47, which is the index's June 2009 high, and then 81.90 - a 50 percent retracement of its fall from 89.62 to 74.17 last year.
It hasn't been a huge move but the Fed minutes have helped the dollar as they were perceived as hawkish, said Johan Javeus, currency strategist at SEB in Stockholm. Whereas before there was a sense that the ECB would be ahead of the Fed in raising rates it now looks increasingly likely that the Fed will move before the ECB, he said.
Concerns about fiscal troubles in Greece and other euro zone countries also continued to weigh on sentiment towards the euro.
Greek Prime Minister George Papandreou said on Wednesday his country was not seeking European taxpayers' money but needed a breathing space to cut its budget deficit and borrow on normal conditions.
Sterling underperformed, falling 0.4 percent against the dollar
Everyone is very focused on the euro zone fiscal situation at the moment, but the UK is in every bit as bad a shape, said Tom Levinson, currency strategist at ING.
Commodity-related currencies came under pressure after the International Monetary Fund said it planned to sell more gold in the market.
The Australian dollar
The yen was broadly firmer after the Bank of Japan kept interest rates on hold and held off on new policy initiatives, as widely expected.
The dollar fell 0.6 percent to 90.78 yen