The euro slipped on Tuesday, heading back towards a two-week low, as optimism about improved US-China trade relations supported the dollar, although currency markets were quiet at the start of the holiday season.
Sterling, which has fallen for five straight days, was under pressure again versus the dollar as worries about a disruptive Brexit and reduced liquidity combined to hurt the currency.
The euro was last down 0.2% at $1.1071. The dollar, measured against a basket of currencies, rose 0.1%, with the index at 97.781.
Australia's dollar approached five-month highs. The Aussie tends to do well when optimism grows over global trade and China's economy. The United States and China have announced phase one of a trade deal, and markets see the agreement as a de-escalation in their long-running dispute.
The Australian dollar rose to as much as $0.6930, within striking distance of its Dec. 13 peak of $0.6939, its highest level since late July. The currency has gained more than 1% since last week.
Analysts say that uncertainties around the Washington and Beijing trade dispute will extend into 2020.
"The trade story is far from over, so Mr Trump can continue the battle next year, and as long as it doesn't impact US growth, it should play well with voters," said David Madden, an analyst at CMC Markets.
The New Zealand dollar traded lower at $0.6632, just below a five-month high of $0.6639 hit on Monday.
China's yuan was unmoved after Premier Li Keqiang said the government was considering more measures to lower corporate financing costs and hinted at "targeted" cuts in banks' reserve requirement ratio. The offshore yuan last traded at 7.007.
Sterling weakened to $1.2938 after reaching a three-week low of $1.2905 on Monday. It has fallen since Prime Minister Boris Johnson ruled out extending the transition period before Britain leaves the European Union beyond December 2020. Many worry that leaves too little time to negotiate a new trade deal with the EU.
"We expect investor concern about cliff-edge Brexit risk to diminish, as political incentives do not support the risk of economic disruption," said Steve Englander, head of global G10 FX research at Standard Chartered bank.
"That said, there is no reason to expect political brinkmanship to diminish; this is likely to be reflected in high volatility. We see the GBP becoming stronger, but on a jagged path."
Against the euro, sterling recovered 0.2% to 85.59 pence. Against the Japanese yen the dollar was unchanged at 109.40.
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