The dollar rose broadly Wednesday as a report showing that U.S. private sector unexpectedly added jobs in July raised prospects of an improvement in non-farm payrolls data Friday.
Poor euro-zone sentiment data, which provided further evidence of rapidly deteriorating economic conditions, and a higher open on Wall Street boosted the dollar.
"The ADP (employment report) number is bullish for the U.S. dollar especially in an environment where we've seen in the last few weeks U.S. data surprising on the upside," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
"One should be reminded that the ADP number is not a highly reliable indicator of what might happen to non-farm payrolls. But nonetheless it has increased the risk that non-farm payrolls could be much stronger than the minus 75,000 expected."
U.S. private employers added 9,000 jobs in July, according to a private report by ADP Employer Services, after slashing 77,000 positions in June.
Economists surveyed by Reuters had expected a reading of minus 60,000 in July.
The dollar index, which tracks the dollar's performance jumped to 73.493 its highest level since June 24. It was last at 73.462, up 0.3 percent on the day.
The euro was down against the dollar, after rising as high as $1.5616 overnight.
The dollar was up versus the yen, erasing losses which had seen it dip to 107.71 yen, as U.S. stocks opened higher.
Further falls in oil prices also boosted dollar sentiment, but lingering worries about the U.S. financial sector would limit the greenback's advance, analysts said.
Fed Extends Credit Facility
The Federal Reserve on Wednesday announced the extension of a credit facility that it provides for primary dealers, while the European Central Bank said it would offer longer-term loans in U.S. dollars in an extension of existing coordinated money market action with the Fed and the Swiss National Bank.
"We haven't been able to garner much additional traction on the dollar as there are still ongoing issues with the financial sector in the U.S. which are overhanging the market to a degree," Rabobank markets strategist Jeremy Stretch said from London.
"Realistically there is a risk that euro/dollar goes lower but I think the break out of the ranges is still probably going to be a post-holiday story," he added.
Economic sentiment in the euro zone skidded in July to its lowest level in five years as confidence fell in all sectors.
Euro-zone economic sentiment worsened to 89.5, well below a Reuters consensus forecast of 93.0.
Consumer, industrial and services sentiment were all below forecast.
Analysts said the data may well be a precursor to a shift in European Central Bank monetary policy towards eventual rate cuts from the current 4.25 percent.
Elsewhere, the Australian and New Zealand dollars fell on a view that the impact of the economic slump and the credit crisis was spreading into the region.
The Aussie was down against the U.S. dollar, hurt by the slide in commodity prices and after the nation's top banks disclosed increased losses from exposure to distressed credit markets.
The New Zealand dollar declined versus the greenback after Reserve Bank of New Zealand Governor Alan Bollard said he sees plenty of room for further interest rate cuts.
The RBNZ is expected to cut rates again in September after it trimmed them by a quarter-point to 8 percent last week.