The dollar was already being weighed down by US President Donald Trump's move to slap stinging tariffs on certain imports.

"The greenback has today extended its losses after US Treasury Secretary Steven Mnuchin at the World Economic Forum in Davos said, what we all know, that a weaker dollar is 'good' for US trade," said Fawad Razaqzada, market analyst at Forex.com.

In Wednesday trading, the euro reached $1.2356 -- the highest level since December 2014.

"The US dollar has fallen back across the board... following a press briefing from US Treasury Secretary Steven Mnuchin in which he welcomed the depreciation," said David Cheetham, chief market analyst at XTB trading group.

"The remarks were made upon his arrival at the World Economic Forum in Davos and have seen an immediate market reaction."

Mnuchin's comments came after Trump announced steep tariffs on imports of solar panels and large washing machines, angering China and South Korea.

US Commerce Secretary Wilbur Ross, also in Davos, defended Monday's tariffs announcement and said Washington would not flinch from reprisals against countries that flout the rules.

The dollar sold off also as investors bet on tighter monetary policies by major central banks, bringing them in line with the Federal Reserve.

The greenback fell below 110 yen for the first time since September.

The European single currency meanwhile profited also from accelerating business activity in the eurozone, while sterling won a boost from rising expectations of more UK interest-rate rises this year after British unemployment data was well-received by markets.

In commodities trading, gold hit a four-month high at $1,349.40 an ounce as the US currency weakened, while oil futures stabilised.

Europe's main stock markets fell as rising local currencies weighed on multinationals earning in dollars, while earlier Asian share indices shrugged off profit-taking to press on with a new year rally that has sent Hong Kong to successive record highs.

However, Tokyo was unable to join in, with exporters hit by a strengthening yen.

Optimism about the global economy which was reinforced this week by the International Monetary Fund, strong earnings reports and Trump's tax cuts have helped fuel a surge in global equities which many expect to continue.