With European shares also rallying and peripheral euro-zone bond markets calm, the euro added more than a cent against the dollar to trade as high as $1.3152 after making a low of $1.3026 in overnight trade.
The Australian dollar climbed to as high as $1.682 against the greenback while emerging European currencies tracked the euro higher.
Signs of an improvement in China's manufacturing sector got markets off to a positive start in Asian hours. This was reinforced by a slightly better-than-expected euro-zone manufacturing activity survey in January. Although overall factory activity continued to shrink, an expansion in German manufacturing activity for the first time since September helped to slow the overall pace of contraction.
"All these different data releases are pointing in the same direction--they are better than expected," said Sebastien Galy, senior currency strategist at Societe Generale in London.
Galy added that some of the deep-pocketed investors who had sat it out for much of January were returning to the market. With so much money sloshing around the global economy, investors increasingly needed to put it to work somewhere, meaning "bad assets are being bought because they are cheap right now."
He cautioned against underestimating the strength of the rally in riskier currency bets. "It has got a lot more energy than you think," he said.
A punchy U.K manufacturing purchasing managers' index added to the improved mood. According to data from Markit and the Chartered Institute of Purchasing & Supply, the index rose to 52.1 in January from an upwardly-revised 49.7 in December, the fastest rate of expansion since last May.
The pound edged up to as high as $1.5787 against the dollar but failed to notch up gains against the euro, party due to a large U.K. bank purchase order in the euro-sterling cross rate, traders said.
The raft of upbeat manufacturing activity data raised investor hopes for the January U.S. non-manufacturing ISM survey, due at 1500 GMT. Economists have pencilled in a reading of 54.5, above last month's 53.9.
The ADP private payrolls report is also due at 1315 GMT, ahead of the key U.S. nonfarm payrolls data Friday, and is expected to show a drop in additional jobs to 170,000 in January from 325,000 in December.
At 1129 GMT, the euro was trading at $1.3117 against the dollar, compared with $1.3085 late Tuesday in New York, according to trading system EBS. The dollar was at Y76.08 against the yen, compared with Y76.26, while the euro was at Y99.80 compared with Y99.77. Meanwhile, the pound was trading at $1.5752 against the dollar, compared with $1.5764 late Tuesday in New York.
The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 79.115 compared with 79.292 late Tuesday in New York.
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