LONDON: The dollar rose to a two-month high against a basket of currencies on Wednesday as investors looked past US President Barack Obama's re-election to the country's fiscal problems.
Analysts said the dollar would benefit from safe-haven flows amid mounting worries over the looming US 'fiscal cliff'.
The world's largest economy risks an economic slowdown and policy paralysis over a sharp budget tightening due to start next year unless a deal is reached in Congress to avert it.
The dollar was up 0.3 percent against its basket at 80.863, its highest in two months.
The euro fell to a two-month low against the dollar, hurt by grim economic forecasts for the euro zone and continued sovereign debt-related worries in Greece and Spain.
The common currency fell to $1.2749, retreating from a session high of $1.28765 as weaker-than-expected German economic data also weighed.
The currency faced further pressure ahead of a Greek parliamentary vote on austerity measures necessary to secure the next tranche of bailout cash, without which the country faces bankruptcy.
"Uncertainty over the Greek vote and the US fiscal cliff are both major risk factors which are weighing on the euro," said Jane Foley, senior currency strategist at Rabobank.
"If the Greek vote doesn't go through, there is a lot of downside risk to the euro as talk of a Greece exit will re-emerge."
Prime Minister Antonis Samaras is expected to narrowly win but the smallest party in his coalition will oppose the measures, leaving him with a margin of just a handful of votes.
The market also remained concerned that Spain could delay seeking international aid.
The European Central Bank will decide on interest rates on Thursday and while no change is expected, a slew of grim data out of the euro zone is likely to keep alive chances of further cuts.
Earlier in the day, the clear-cut US election result lifted stocks and riskier currencies, helping the higher-yielding Australian dollar rise to its highest in nearly seven weeks and the Canadian dollar to a three-week peak.
Obama's re-election was seen as a signal that the Federal Reserve's easy monetary policy is likely to stay in place, supporting to demand for riskier assets.
But that trend soon fizzled out as investors turned their attention to the euro zone's problems and the US fiscal cliff.
The Democrats retained a majority in the Senate but the Republicans held control of the House of Representatives, signalling tough budget negotiations, potentially prompting safe-haven flows into the dollar.
"Beyond the initial reaction, the 'risk on' sentiment will be challenged at some point by the heightened fiscal cliff threat," David Bloom, global head of FX strategy at HSBC wrote in a note.
"We believe this may extend the dollar's weakness, but will cap and potentially reverse the rally in "risk on" currencies we expect in the near term."
Against the yen the dollar fell to as low as 79.81 yen, well below its four-month high of 80.68 yen hit last week. It recovered to 80.10 yen, still down 0.3 percent as yields on US Treasuries fell sharply.
Analysts at Morgan Stanley said they are maintaining their bullish strategy for dollar/yen and expected a re-test of the 80.70 high, with a break above there opening the way for gains towards their 84.00 target.