The common currency's gains were limited by worries about the sustainability of Italy's public finances, though Italian Economy Minister Giovanni Tria reiterated on Wednesday that the government would do everything in its power to regain the confidence of financial markets.

"There is more optimism that they will find some agreement between Britain and (the) European Union before Brexit," said Steve Englander, global head of G10 FX research at Standard Chartered Bank in New York.

This week, Brexit negotiators have hinted progress toward terms for Britain to leave the economic bloc in March, which gave investors hope for an orderly departure. Still, caution persists due to scant details.

On Wednesday, EU's Brexit negotiator, Michel Barnier, said the two parties have agreed on much of the withdrawal agreement ahead of a summit of all the bloc's 28 national leaders next week.

The pound reached a two-week high at $1.3210 Wednesday and held a gain of 0.46 percent on the day. It hit its strongest level against the euro since June 15 at 87.23 pence.

The euro rose 0.34 percent to $1.15315 and 0.17 percent to 130.035 yen.

The bounce in the two currencies offset an increase in US Treasury yields, putting pressure on the dollar.

Benchmark 10-year yield retreated from a seven-year high of 3.261 percent set on Tuesday, even as investors reduced their bond holdings in advance of $36 billion 3-year and $23 billion 10-year note auctions later Wednesday.

US yields have increased on rising government debt supply and worries about higher inflation, which may push the Federal Reserve to raise short-term rates more quickly.

The ICE dollar index, which tracks the greenback against six major currencies, fell 0.24 percent on the day to 95.437. It hit a seven-week high on Tuesday at 96.155.

Among other major currencies, the Norwegian crown gained 0.83 percent against the dollar to 8.1970 crowns, and rose 0.51 percent versus the euro to 9.4522 crowns, after Norway's inflation rate rose more than expected in September .