The U.S. dollar rose to one-week highs against the euro on Thursday after the European Commission said Italy's 2019 budget draft is in serious breach of EU budget rules.
The step prepares the ground for what would be an unprecedented rejection of a member state's fiscal plan.
The euro tumbled to $1.1455, its lowest against the greenback since Oct. 9, on the news.
The single currency and the British pound also dropped as summit talks in Brussels failed to resolve a Brexit standoff between London and the EU over the status of the Irish border, an issue playing an increasingly dominant role in negotiations.
The dollar was also supported by hawkish minutes from the Federal Reserve's September meeting released on Wednesday, which showed that Fed policy makers are largely united on the need to raise borrowing costs further.
The Japanese yen gained as U.S. stocks sank more than 1 percent, hurt by weak industrial earnings that raised worries about rising expenses and the impact of tariffs.
China's currency traded near a three-month low against the dollar after a semiannual report by the U.S. Treasury refrained from naming China a currency manipulator but showed concern about yuan depreciation.
The greenback gained 0.29 percent against the Chinese currency to 6.95 per dollar.