The hit a seven-week high on Wednesday after hawkish comments from two Federal Reserve officials late on Tuesday increased expectations that the U.S. central bank is closer to raising interest rates.
New York Fed President William Dudley, a permanent voter on the U.S. central bank's open market committee, said the case for tightening monetary policy "has become a lot more compelling."
John Williams, President of the San Francisco Fed, said a rate increase was very much on the table for serious consideration at the March meeting given full employment and accelerating inflation.
"Williams and Dudley are very strongly signaling the fact that March is a live meeting, and that's occurring against the backdrop of consistently strong (economic) numbers," said Richard Franulovich, a senior currency strategist at Westpac Banking Corporation in New York.
The Fed officials' comments sent Treasury yields higher, and the U.S. dollar jumped 0.8 percent against a basket of six major currencies, its highest since Jan. 11.
The greenback climbed 1.05 percent to touch a two-week high of 113.92 and gained half a percent against the euro to $1.0521.
Futures traders are now pricing in a 69 percent chance of a Fed hike in March, up from 35 percent on Tuesday, according to the CME Group's FedWatch Tool.
Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak on Friday.
Data on Wednesday showed that U.S. consumer price inflation jumped in January by 0.4 percent, the largest increase since February 2013, while consumer spending increased 0.2 percent in the month.
Rate expectations overshadowed a speech by President Donald Trump late on Tuesday, which outlined broad tax cuts and a $1 trillion public-private initiative to rebuild degraded roads and bridges but failed to give specific details on the plans.
China's yuan was up just 0.19 percent on Wednesday.
The Chinese currency has been a target for markets given Trump's previous aggressive talk on trade but has risen for the past two months as the dollar's rally stalled.
The Mexican peso, seen as the most vulnerable to Trump's protectionist policies, fell 1.61 percent to 19.77 pesos per dollar.
The dollar also rose against sterling, with the pound falling below $1.23 for the first time since late January after weak British manufacturing and credit data.