The dollar weakened slightly from 5-week highs Wednesday. It's been gaining steadily since the start of the month.
On Wednesday, the 16-nation euro rose to $1.4714 in late New York trading from $1.4685 late Tuesday. Earlier in the session, the euro fell as low as $1.4670, its weakest point since Oct. 5.
The euro has dropped as much as 4 cents against the dollar this month, as investors are locking in the gains they've already made on the euro's rise this year, said Joseph Trevisani, chief market analyst at FXSolutions. The dollar has also gotten a boost from concerns over European countries' public finances and higher expectations for the Federal Reserve to hike rates sooner, he said.
Higher interest rates can boost a currency as investors transfer funds to where they expect to earn higher returns.
The British pound dipped to $1.6248 from $1.6261 as U.K. Treasury chief Alistair Darling downgraded his forecast for the British economy in 2009. He also said he expects the British government to borrow slightly more next year than he previously thought. Earlier this week, Moody's Investors Service said the U.K. must fix its public finances in order to avoid threats to its top triple-A credit rating.
Meanwhile, the dollar dropped to 87.77 Japanese yen from 88.34 yen.
Against a basket of six major currencies, the dollar retreated from a 5-week high.
The dollar, which is considered a safe-haven currency, is also getting support from concerns about government finances. Earlier this week, a credit ratings agency downgraded the creditworthiness of Greece's sovereign debt, while Moody's cited the U.K.'s deteriorating public finances. It also cut its ratings on six Dubai state-linked companies.
The Greek prime minister is promising to do "everything necessary" to reduce its growing deficit.
"The key questions now being asked is, will the rest of Europe have to help Greece out, and will Greece be the beginning of other debt downgrades across Europe," said CMC Markets' Michael Hewson.
On Wednesday, Standard & Poor's Ratings Services revised its outlook on Spain to negative from stable because of lower expected gross domestic product growth.
Standard & Poor's said it was maintaining its AA+ long-term sovereign credit ratings for Spain. The company downgraded Spain from AAA to AA+ in January.
Meanwhile, UBS analyst Patrick Ley said better U.S. data _ especially news indicating an improving labor market _ is leading investors to think the Federal Reserve will hike interest rates sooner than they expected.
In another example of improving economic news in the U.S., the government on Wednesday said businesses added to inventories at the wholesale level in October _ after 13 straight months of declines. Companies boost inventories when they expect rising sales, which then prompts their suppliers to boost production, prompting a broad economic recovery.
In other U.S. trading, the dollar dipped to 1.0271 Swiss francs from 1.0283 francs, and dropped to 1.0539 Canadian dollars from 1.0671 late Tuesday.