The dollar softened on Tuesday after bearish reports on the US services sector and the job market caused a sell-off ahead of Friday's widely anticipated September employment data.
Traders also focused on whether Fed officials would give any indication that the high price of oil, which set another record on Tuesday, is taking a bite out of the economy. Such comments could be interpreted as a sign the Fed would be more apt to pause this year in lifting interest rates.
Crude for November delivery traded on the New York Mercantile Exchange traded at a record $51.29 a barrel before falling to settle at $51.09, pressured by prolonged production outages in the Gulf of Mexico.
The Institute for Supply Management's non-manufacturing segment index slipped to 56.7 in September, from 58.2 in August, lower than market forecasts of a 59.0 reading.
A separate report from employment services firm Challenger, Gray & Christmas showed planned layoffs increased by 107,863 in September, the highest since January.
"I think there was marginal impact (on the dollar) as a result of the Challenger report. But that was very short-lived," said Ronald Simpson, managing director of global currency analysis at Action Economics, a research firm in New York.
"The non-manufacturing ISM print was a little weaker than expected, but if you look at the components - labour was strong for two months in a row. Overall, it was not an entirely negative report for the dollar or the US Treasury market," he said.
By late afternoon in New York, the euro rose 0.2 percent to $1.2314.
Against the yen, the dollar gained to 111.12 yen, as the Japanese currency reeled from the impact of soaring crude costs. Japan, which imports almost all of its crude, is seen as the most vulnerable to high prices among major economies.
The euro was also well bid against the yen, trading 0.4 percent higher at 136.85 yen.
The dollar fell against the Swiss franc to 1.2615 francs, while sterling traded nearly flat at $1.7830.
The market's next focus will be the US non-farm payrolls report on Friday, the final employment report before the presidential election in November. The report is expected to show an increase of 148,000 new jobs, up from 144,000 in August, according to a Reuters poll.
Joe Francomano, director of foreign exchange at Erste Bank in New York, said most analysts have revised their estimates for September payrolls lower because of the hurricanes last month. That could affect the dollar this week before the jobs report is released.
"Higher oil prices plus the lowering of some of the jobs forecasts are boding poorly for the dollar. If both are still in place by Friday morning, the euro could approach $1.2450," said Francomano.
Analysts earlier struggled to interpret the ISM report, which some said gave mixed signals. The new orders measure of incoming business barely slipped and the employment gauge ticked higher, even though the headline number was soft.
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