The safe-haven yen was the currency darling on Wednesday as investors sought its refuge amid political instability in Egypt and Portugal, although encouraging U.S. labor market signs had it paring gains against the dollar.
Japan's currency and the Swiss franc, which is also favored during times of turmoil, were supported by worries about unrest in Egypt. Fears it could destabilize the Middle East and lead to supply disruption pushed oil to a 14-month peak.
In Europe, Portugal's president summoned main political parties for crisis talks over the government's future with markets reeling on fears that a snap election could interfere with Lisbon's exit from an international bailout.
"International developments are having an effect in the currency market and that's why the yen is higher," said Nick Bennenbroek, head of currency strategy at Wells Fargo Securities in New York.
"Obviously, the unresolved situation in Egypt and the government resignations in Portugal are an issue. We're not only seeing some of the G-10 currencies weaken, but also emerging market currencies."
The dollar however did get a modest reprieve against the yen following data showing the U.S. private sector created more jobs than expected in June, adding 188,000 positions, while U.S. initial weekly jobless claims fell for a second straight week.
The reports boded well for Friday's U.S. non-farm payrolls data and more importantly affirmed a growing conviction the Federal Reserve will scale back its quantitative easing program sooner than expected.
(Read More: Private Jobs Jump, Claims Fall as Labor Market Heals)
"The U.S. labor market numbers do signal a better number for Friday's employment report and just add to the (quantitative easing) tapering message and that's positive for the dollar," said Greg Moore, currency strategist, at TD Securities in Toronto.
Europe's common currency earlier hit a five-week low against the dollar after political tension in Portugal pushed up the borrowing costs of lower-rated euro zone countries. The euro fell to $1.2921, its lowest since late May. It had last bounced up to $1.301, up 0.3 percent on the day.
Portuguese 10-year bond yields topped 8 percent and equities slid as media reports said two more government ministers were ready to resign after the finance and foreign ministers quit earlier this week.
(Read More: Portugal Stocks Tumble as Political Crisis Worsens)
Spanish and Italian yields also rose on worries the euro zone was set for another round of instability.
Meanwhile, the dollar index, which measures the currency's value against a basket of currencies, slipped 0.4 percent to 83.21, off an earlier five-week peak of 83.717.
Traders were cautious before a U.S. market holiday on Thursday that could spark volatile movements due to low volumes.
The higher-yielding Australian dollar slid to a near three-year low of US$0.9052 after Reserve Bank of Australia Gov. Glenn Stevens said he was surprised by the resilience of the currency. It last traded near there at 0.9061, down 0.9 percent on the day.