The dollar extended a recovery on Tuesday from one-year lows against the euro after Federal Reserve Chairman Ben Bernanke's pledge to stay vigilant against inflation left the door open for another interest rate rise later in June.
Speaking at an international monetary conference in Washington on Monday, Bernanke suggested he was concerned about core inflation accelerating beyond what is consistent with price stability.
The possibility that the Fed will raise rates for the 17th straight time to 5.25 percent sparked a round of dollar short covering, helping the US currency recover from a sell-off on a soft employment report late last week.
But gains were limited as some investors worried that Bernanke's comments did not necessarily guarantee that a rate rise is in the bag this month.
"The market is more or less split between whether the Fed will raise or not, so it's hard to take on risk either way at this point," said Fumihiko Kawano, forex manager at Nomura Securities.
Fed funds futures indicate a roughly 70 percent chance of a rate hike at the Fed's two-day policy meeting that starts on June 28, up from less than 50 percent on Friday.
Traders said any recovery was likely limited with the renewed focus on a weaker dollar helping rein in the massive US trade deficit and playing a role in correcting global imbalances.
"Bernanke's comments may have triggered some short covering but a rise in the dollar/yen to 113 yen is going to be pretty tricky," said Nobuaki Kubo, forex planning manager at Resona Bank.
So far this year the dollar has tumbled 8 percent against the euro and 5 percent versus the yen, with the slide accelerating after the Group of Seven industrial powers called in April for China and other trade surplus countries to allow more currency strength.
The dollar edged up to 112.40 yen from around 112.25 yen in late US trade on Monday.
The euro slipped to $1.2895 from around $1.2905 and pulled further away from $1.2980 struck on electronic trading platform EBS the previous session, the strongest since May 2005.
The single European currency edged up to a six-week high near 145.00 yen.
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