The pound was down 0.2 percent at 87.42 pence per euro after setting a three-year low against the single currency.
The dollar was broadly stronger against the pound, euro and four other major currencies. It was up 0.8 percent to a 13-day high against this basket of currencies, helped by an increase in risk sentiment and an upbeat survey of the U.S. manufacturing sector that drove investors to raise their bets on a rate hike by the end of the year.
On Tuesday, Richmond Federal Reserve President Jeffrey Lacker said there was a strong case for raising interest rates and that borrowing costs might need to rise significantly to keep inflation under control.
U.S. interest rates futures suggested traders saw a 63 percent chance the Fed would raise rates at its Dec. 13-14 meeting, up a touch from late on Monday, according to CME Group's FedWatch progam.
"Good data increases the chances of interest rate rises," said Commerzbank currency strategist Esther Reichelt in Frankfurt, "and when the dollar appreciates, people are jumping on that train."
The dollar jumped more than 1 percent to a 13-day high of 102.83 yen on Tuesday on demand tied to rising oil prices and reduced jitters over the stability of Deutsche Bank
The Australian dollar showed little reaction to the Reserve Bank of Australia's widely expected decision to stand pat on monetary policy, falling 0.4 percent to $0.7642.