Positive manufacturing and construction data from the U.S. made traders more willing to buy riskier currencies Tuesday.
The dollar fell against the euro, pound, yen and most other currencies. Economic reports out of Germany and China were also strong.
A trade group of purchasing managers said Tuesday that its U.S. manufacturing index rose at the fastest pace in six months in December. It's the latest sign that the U.S. economy gained speed at the end of last year.
Meanwhile, construction spending rose in November as builders spent more on single-family homes, apartments and remodeling projects, the U.S. Commerce Department said.
The euro rose to $1.3056 in late trading Tuesday from $1.2929 late Monday. On Thursday, the euro hit a 15-month low of $1.2857 after an Italian bond auction disappointed investors.
In Germany, Europe's largest economy, the average number of people unemployed last year was the lowest in two decades. A Chinese manufacturing index also rose in December, reversing a slide in the previous month.
"After a bleak end to 2011 and fears that 2012 could plunge the western world into another recession there is a tiny glimmer of light for the optimists in the market to grab hold of," Kathleen Brooks, research director at FOREX.com, wrote in a note to clients.
In other trading, the British pound rose to $1.5652 from $1.5501 late Monday. The dollar fell to 76.67 Japanese yen from 76.91 Japanese yen, to 0.9321 Swiss franc from 0.9385 and to 1.0102 Canadian dollar from 1.0180 Canadian dollar.
The U.S. currency also fell against the Australian and New Zealand dollar, the Norwegian krone and the South Korean won.