Sterling jumped to a two-week high versus the dollar and posted its largest daily percentage gain in seven months on hopes of a Brexit resolution. The pound was last up 1.9% at $1.2447.
"With a Brexit deal looking more likely and U.S.-China talks showing more progress, it's just clear that the dollar is losing some safe-haven demand," said Juan Perez, senior currency trader, at Tempus Inc in Washington.
On Thursday, Irish Prime Minister Leo Varadkar said a Brexit deal could be clinched by the end of October to allow the United Kingdom to leave the European Union in an orderly fashion, after what he called a very positive meeting with Boris Johnson. Ireland is a major factor in the prolonged Brexit impasse.
"Once again, as the door for further discussions seemed to be closing, the glimmer of hope shone a little brighter," said Tim Riddell, macro strategist, at Westpac in London.
"Whether there is time to create the foundations for any form of agreement into next week's EU Leader's Summit so that it can be debated at UK Parliament's special sitting on the 19th is still a distant hope," he added.
Investors also voiced hopes that Washington and Beijing could reach a trade agreement.
Chinese Vice Premier Liu He on Thursday said China was willing to reach an agreement with the United States on matters both sides care about to preventfurth er escalation in tensions, the state news agency Xinhua reported.
Liu, China's top trade negotiator, made his comment in Washington when he met with U.S. officials as trade talks between the two countries started.
In afternoon trading, the dollar index posted its biggest daily drop in five weeks. It last fell 0.4% to 98.70 <.DXY>, after earlier sliding to a two-week trough.
The yen, another safe haven in times of geopolitical and financial stress, also fell to a one-week low against the dollar, weakening as well against riskier currencies such as the Australian dollar.
The dollar was last up 0.4% against the Japanese yen at 107.89 yen.
The euro rose to a two-week high and last changed hands at $1.1004, up 0.3%.
The dollar was little moved after data showed U.S. consumer prices were unchanged in September, while underlying inflation slipped 0.1%. Market bets for a quarter-point U.S. rate cut at the U.S. Federal Reserve's next policy meeting in October swelled to 85% from 53% a month earlier.
Currency bid prices at 4:35PM (2035 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar EUR= $1.1007 $1.0969 +0.35% -4.03% +1.1034 +1.0972
Dollar/Yen JPY= 107.9300 107.4600 +0.44% -2.11% +108.0100 +107.0400
Euro/Yen EURJPY= 118.80 117.90 +0.76% -5.88% +118.9400 +117.5800
Dollar/Swiss CHF= 0.9966 0.9956 +0.10% +1.55% +0.9972 +0.9915
Sterling/Dollar GBP= 1.2444 1.2204 +1.97% -2.45% +1.2468 +1.2207
Dollar/Canadian CAD= 1.3290 1.3330 -0.30% -2.54% +1.3345 +1.3269
Australian/Doll AUD= 0.6762 0.6723 +0.58% -4.07% +0.6774 +0.6711
Euro/Swiss EURCHF= 1.0971 1.0925 +0.42% -2.51% +1.0977 +1.0900
Euro/Sterling EURGBP= 0.8841 0.8986 -1.61% -1.59% +0.9019 +0.8831
NZ NZD= 0.6319 0.6291 +0.45% -5.93% +0.6335 +0.6278
Dollar/Norway NOK= 9.1224 9.1721 -0.54% +5.60% +9.1816 +9.1096
Euro/Norway EURNOK= 10.0437 10.0628 -0.19% +1.39% +10.0878 +10.0427
Dollar/Sweden SEK= 9.8402 9.9586 -0.85% +9.78% +9.9583 +9.8191
Euro/Sweden EURSEK= 10.8324 10.9258 -0.85% +5.53% +10.9325 +10.8310
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Nick Zieminski, Tom Brown and David Gregorio)
By Gertrude Chavez-Dreyfuss