The dollar eased from a 8-month peak against a basket of currencies on Tuesday, with caution prevailing in a holiday-hit trading week that is likely to see major currencies stay within tight ranges.
In Europe, the attention will be on Bank of England Governor Mark Carney who is expected to testify to lawmakers later in the day. Earlier this month, he cooled expectations that the BoE will follow the Federal Reserve soon in raising rates, and he is expected to reiterate that, flagging external risks to growth.
The dollar index was down 0.15 per cent at 99.63, having hit a 8-month high of 100.00 struck on Monday. Volumes are likely to stay low given the Thanksgiving holidays in the United States.
The index had fallen to as low as 98.735 late last week in what was considered a corrective phase following days of strong gains fuelled by prospects of tighter US monetary policy.
Futures prices showed investors see a near-75 per cent chance the Fed will hike rates next month, according to CME Group's FedWatch.
"With odds increasing for a rate hike in December, the debate will shift to weather future rate hikes will be slow and gradual," said Jeremy Stretch, head of currency strategy at CIBC World Markets.
"In that case, there may be less justification for holding long dollar positions and for the index, the air above 100 could get rarefied."
In a letter to US consumer advocate Ralph Nader, Fed Chair Janet Yellen had on Monday reiterated that the central bank should only gradually raise interest rates, boosting expectations that the bar for rate hikes in 2016 is rather high.
"With a rate hike seemingly priced in, market views are that the dollar could fall after the Fed delivers a hike in December," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.
"Focus is shifting to when the second rate hike would be, and how many times the Fed could hike rates next year."
The euro inched up to $1.0645 after touching a 7-month trough of $1.0592. Investors are focussing on the German IFO survey for cues and a good number could see the euro jump to $1.0675, but traders said those gains are likely to be fleeting.
Sterling was flat at $1.5118 and slightly lower against the euro. Governor Carney will be joined by chief economist Andy Haldane and external member Kristin Forbes and new member Gertjan Vlieghe. Traders, though, expect Carney to tread water with his guidance, at least until after the December Fed meeting.