The increase in risk appetite also encouraged investors to take profits on sterling, which had fallen as low as $1.4171 in European trading. It was last up 0.77 percent at $1.4356.
The dollar index fell 0.31 percent despite positive U.S. economic data showing a surprisingly large boost in consumer confidence and a rise in U.S. home prices. The data went largely unnoticed by markets, because investors are awaiting word from the Federal Reserve on interest rates on Wednesday, said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
"The fact that the U.S. continues to perform relatively well is certainly good news," said Esiner, "but the real concern and the real story is going to be what's going on in the global economy and how the Fed characterizes that with respect to their outlook."
Investors will be studying the U.S central bank's message on Wednesday to determine what, if any, effect volatile global markets, plummeting oil prices and heightened fears of a Chinese slowdown will have on the Fed's previously stated intentions to continue raising interest rates this year.
Markets are pricing in just one rate increase this year, compared with the Fed's rate path, which suggested at least four hikes back in December.