The dollar rose on Tuesday from the previous session's multi-month lows against the euro as investors positioned ahead of Federal Reserve Chairman Alan Greenspan's testimony for clues on future US rate moves.
Greenspan delivers the first part of his semi-annual monetary report to Congress at 1830 GMT. Given recent signs of slower US growth, many expect the US central bank chairman to reiterate his pledge to be patient in raising interest rates.
But investors also hedged their bets in case Greenspan also sounded an optimistic note about the economy, while dealers said recent greenback falls had left the market ripe for a reversal.
"Greenspan will probably keep the word "measured" but some people are suggesting he is still going to be reasonably optimistic about the economy. After all the US economy is hardly in a bad state," said Chris Gothard, currency analyst at Brown Brothers Harriman.
By 1141 GMT, the euro traded 0.47 percent lower against the dollar at $1.2383. The euro rose to $1.2461 on Monday, its highest in over four months.
The euro rose briefly near Monday's peak after Germany's key ZEW survey suggested investor optimism in Germany was improving, but then it quickly retreated.
Elsewhere, the yen recovered much of its early losses against the dollar and all of its fall versus the euro, which came on the back of as falls in Japanese share prices.
Worries about corporate earnings, particularly among technology firms, knocked Japan's Nikkei share average to its lowest close since June 4.
The euro was down a touch against the yen at 134.39, compared to Friday's six-week high at 135.80. The dollar was a touch firmer on the day at 108.49 yen, but still not far from one-week lows hit on Monday.
Signs of a pause in the US recovery, rising oil prices and disappointing corporate earnings have weighed on both the dollar and the yen in recent weeks, leaving the euro the main beneficiary.
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