Better U.S. economic data and recent comments by Fed officials that more interest rate hikes were coming have helped offset concerns about the budget and current account deficits -- key factor behind the dollar's three-year downtrend.
Investors have also been waiting for details of President Bush's plans for the 2006 government budget, wondering whether substantial deficit cuts could be introduced that would ease the structural burden on the dollar.
Bush makes his inauguration speech later, but is unlikely to unveil detailed plans, though his State of the Union address and budget presentations in February will be even more closely watched for clues on fiscal plans.
"If they made real inroads into the deficit that could help cut the current account deficit," McMahon said.
The dollar was also helped by speculation U.S. multinational companies may repatriate their funds to take advantage of a tax break.
A tax cut signed by Bush last year encourages multinational companies to return earnings from foreign subsidiaries to the U.S. at a tax rate of 5.25 percent instead of the normal 35 percent top corporate rate.
Drugmaker Johnson & Johnson said on Wednesday it would repatriate about $11 billion in past earnings, while Pfizer said it was considering repatriating up to $38 billion.