Traders sold yen and dollars on Wednesday, as hopes for a plan from the Obama administration to take on bad bank debt sent equities surging and encouraged risk trading.
The British pound climbed 0.9% to $1.4274 and the euro rose 0.5% to $1.3244.
Both of these currencies also climbed against the Japanese yen, which was broadly steady against the dollar.
Stocks rose in Europe, and U.S. stock futures were stronger, on hopes for a new bank rescue plan. See Europe Markets.
"The line of logic is that in an environment of rising risk aversion, you're buying dollar and yen and selling everything else," said Daragh Maher, a currency strategist at Calyon in London. "In an environment of growing risk appetite, you're selling yen and dollar and buying everything else."
He added that a recent update from U.K. bank Barclays , which said it didn't need to raise capital, helped to quell some of the bank nationalization fears rampant in the British market.
There's also market speculation the Federal Reserve will buy longer-dated Treasury bonds, though Maher doesn't believe the U.S. central bank will do so.
Economists don't believe the central bank will alter the language very much in the new policy statement, expected Wednesday at 2:15 pm Eastern time.
The December statement from the Fed said the central bank was "evaluating" the potential benefits of buying long-term Treasurys.
