The pound sterling fell sharply after British inflation fell faster than expected, reinforcing bets that the Bank of England will cut interest rates at its meeting this week.
British consumer inflation fell to 3.2% in November, the lowest since March, prompting investors to raise expectations of monetary easing even though the rate is still far from the 2% target.
Meanwhile, the US dollar strengthened as investors awaited US inflation data to gauge further steps by the Federal Reserve, after weak jobs data failed to provide clarity on policy direction.
Several major central bank meetings were in the market's sights, including the BoE, ECB and Bank of Japan, which are expected to raise rates to their highest levels in decades.
In Europe, the euro fell slightly ahead of the ECB decision, with the German economy continuing to show signs of slowing.
