Treasuries decreased to the narrowest in more than two months. The pound fell to a 2 1/2-month low against the dollar after an industry report showed U.K. consumer confidence declined last month to the weakest in at least four years.
The dollar increased 1 percent to $1.5378 against the euro at 10:30 a.m. in New York, from $1.5532 yesterday. The U.S. currency rose 0.6 percent to 105.43 yen, from 104.77. The euro fell 0.4 percent to 162.15 yen, from 162.71.
The U.S. currency strengthened as the Labor Department reported that worker productivity unexpectedly accelerated in the first quarter, indicating the world's largest economy can expand with lower inflation.
The dollar started its gain as Federal Reserve Bank of Kansas City President Thomas Hoenig said in a speech in Denver yesterday that ``serious'' U.S. inflation pressure may compel the central bank to increase interest rates.
The U.S. currency has rebounded 3.7 percent versus the euro since April 22, when it sank to a record low of $1.6019. The Fed said rate reductions to date were ``substantial'' after lowering its target lending rate last week by a quarter-percentage point to 2 percent, its seventh cut since September.
The euro extended its drop versus the dollar after a government report showed German manufacturing orders dropped 5 percent in the year ended in March, compared with an 8.9 percent increase the prior month.
The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose to 73.531, from 72.999 yesterday.