The dollar was higher against the yen and euro in Asian trading Wednesday, continuing its earlier strength on concerns about Germany's upcoming election and a report showing a slight pullback in the U.S. trade deficit for July. The dollar was trading at 110.59 yen on the Tokyo foreign exchange market at 1 p.m. Wednesday, up 0.09 yen from late Tuesday and below 110.65 yen it bought in New York later that day. The dollar also gained against the euro as concerns over the potential outcome of Sunday's election in Germany pressured the European currency. The worries focus on whether either party will win a majority, and that political gridlock could stunt plans for corporate and economic reform which are seen as key for stimulating economic growth in Germany, as well as the euro zone. The euro fell to $1.2297 from $1.2305 late Tuesday. In New York late Tuesday, the British pound bought $1.8265 compared with $1.8190 late Monday. The dollar fell to 1.2575 Swiss francs from 1.2580, and to 1.1809 Canadian dollars from 1.1857. Following the destruction caused by Hurricane Katrina to the Gulf Coast region of the United States, many traders had begun thinking that the Fed may pause its measured interest rate increases because of the anticipated economic slowdown. But many are now speculating that inflation may be sharp enough to keep the rate increases going when the Fed next meets on Sept. 20. The U.S. Labor Department said Tuesday that soaring costs for gasoline and other energy products fueled inflation at wholesale levels for a second consecutive month in August -- before Katrina disrupted fuel supplies. Wholesale prices rose 0.6 percent last month following an even bigger 1 percent jump in July. Meanwhile, the Commerce Department reported that the U.S. trade deficit in July improved slightly despite the fact that oil imports climbed to an all-time high and the imbalance with China also set a record. The July trade gap fell by 2.6 percent to $57.9 billion from an imbalance of $59.5 billion in June, the second highest deficit on record. The trade deficit has long weighed on the U.S. currency because it means more dollars are sold to pay for imports than are bought to buy U.S. goods destined for foreign markets. Exchange rates could also be affected by Sunday's election in Germany, where the conservative opposition Christian Democrats and their preferred coalition partner, the pro-business Free Democrats, no longer have majority support, according to the latest polls.