The dollar index, which tracks the greenback against six major currencies, was up 0.54 percent at 93.469, after rising to 93.607, the highest since August 23.
The greenback, which rose on Tuesday after Federal Reserve Chair Janet Yellen said the Fed needs to continue gradual rate hikes despite broad uncertainty about the path of inflation, added to gains on Wednesday after better-than-expected US core capital goods data.
New orders for US-made capital goods increased more than expected in August and shipments maintained their upward trend, pointing to underlying strength in the economy despite an anticipated drag on growth from Hurricanes Harvey and Irma.
"It really is an extension of the rally kicked off by the Fed last week," said Mazen Issa, senior FX strategist, at TD Securities in New York, referring to the central bank's meeting where the Fed signalled it may raise interest rates for a third time this year.
"Generally the market has been leaning on the short side with respect to the dollar. I think there has been some short covering," Issa said.
Speculators' net short bets on the US dollar grew in the latest week to the highest total since January 2013.
"You do have the announcement of tax reform coming out today, so I imagine there is a little bit of optimism, even if it is short lived," Issa said.
Republicans in the US Congress and the White House called for slashing tax rates on businesses and the wealthy on Wednesday, as part of a new tax plan that offers few details about how to pay for tax cuts without expanding the federal deficit.
The euro hit a more than one-month low as an ongoing dollar short squeeze and reaction to the German election encouraged investors to take profits on one of the best-performing currency trades this year.
The Canadian dollar weakened against its US counterpart ahead of a speech by Bank of Canada Governor Stephen Poloz.
Canada's central bank governor will deliver an economic progress report, followed by a news conference. After interest rate hikes in July and September, markets will be looking for clues as to how aggressively the bank may tighten from here.