The dollar rose after stronger-than-expected June U.S. retail sales data dampened expectations that the Fed could cut interest rates by 50 basis points (bps) rather than 25 bps at its month-end policy review.
"The strong U.S. data is a key driver behind the dollar's latest gains, but weakness in European currencies, notably the pound and euro, is also playing a significant role as well," said Junichi Ishikawa, senior FX strategist at IG Securities.
The pound retreated to a 27-month low of $1.2396 overnight as Boris Johnson and Jeremy Hunt, the two candidates to be Britain's next prime minister, vied to outgun each other on taking a harder Brexit stance.
Sterling last traded little changed at $1.2411.
The euro was steady at $1.1212 after losing more than 0.4% the previous day.
The losses came after a survey by the ZEW institute showed that the mood among German investors deteriorated more sharply than expected in July amid the prolonged trade dispute between China and the United States as well as political tensions with Iran.
The dollar was a touch lower at 108.175 yen after advancing 0.3% against the yen overnight on the strong U.S. retail sales data.
The Australian dollar was nearly flat at $0.7007, having lost 0.4% on Tuesday following comments by U.S. President Donald Trump.
The United States still has a long way to go to conclude a trade deal with China but could impose tariffs on an additional $325 billion worth of Chinese goods if it needed to do so, Trump said.
The Aussie is sensitive to the economic fortunes of China, Australia's largest trading partner.
The impact of Trump's comments on other major currencies, however, was limited.
"The U.S.-China trade row is not at the centre of the market's attention right now. Focus is on the Fed's policy, U.S. data and their impact on yields," Ishikawa at IG Securities said.
Fed Chairman Jerome Powell, speaking in Paris on Tuesday, reiterated a pledge to "act as appropriate" to keep the U.S. economy humming.
Chicago Fed President Charles Evans, meanwhile, said on Tuesday that an interest rate cut of a half a percentage point at the U.S. central bank's July 30-31 policy meeting could speed up achieving the Fed's inflation goal.
"A Fed rate cut has become a foregone conclusion. But there appears to be no consensus --not only in the markets but within the Fed itself-- on how many times rates would be lowered and the direction of the U.S. economy," said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.
(Reporting by Shinichi Saoshiro Editing by Shri Navaratnam & Kim Coghill) ((email@example.com; Reuters Messaging: firstname.lastname@example.org +813-6441-1774))