Heavy losses in emerging market currencies have also benefited the dollar.

Bloomberg reported on Thursday that US President Donald Trump told aides he wants to move ahead on a plan to impose tariffs on $200 billion worth of Chinese goods next week.

Reuters is unable to verify the veracity of the report.

The Bloomberg report triggered falls in the offshore Chinese yuan and the Australian dollar, which both fell to a nearly one-week low against the US dollar.

The US dollar also dropped to the day's low versus the safe-haven yen after the Bloomberg report. The dollar was last down 0.6 percent at 111.05 yen.

Trump has threatened 25 percent tariffs on $200 billion of Chinese imports because of China's retaliatory tariffs on $50 billion worth of US products. The US tariffs are expected to take effect in late September after a public comment period ends on Sept. 5.

"The dollar is clearly benefiting from all these trade tension headlines, but at the end of the day, the market is only focused on the US economy's solid fundamentals," said Juan Perez, currency trader at Tempus Consulting in Washington.

"The consistency of the US dollar has been supporting the US dollar all along."

In afternoon trading, the dollar index rose 0.2 percent to 94.738.

The United States and Canada, meanwhile, have expressed optimism that they could reach a new NAFTA deal by Friday, although Ottawa said a number of tricky issues remained.

The Canadian dollar, however, pulled back from a 2-1/2-month peak hit two days ago versus the dollar, dropping 0.6 percent to 76.96 US cents.

The dollar was also supported by Thursday's data showing US consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.4 percent last month.

With demand strong last month, consumer prices continued their gradual upward trend. The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2 percent.

Sharp drops in emerging market currencies have also helped the dollar's cause, with declines in the Argentine peso leading the way. Argentina's central bank on Thursday boosted its benchmark interest rate to 60 percent from 45 percent in a bid to control inflation running at more than 31 percent, as the country's currency plummeted 15.6 percent to a record low 39 pesos per US dollar.

Other emerging currencies were also weaker against the dollar: the Mexican peso fell 0.7 percent, while the South African rand dropped 1.3 percent.