The dollar eased from recent two-week highs against the euro, while also falling sharply versus the yen on Wednesday as investors awaited this week's slew of US economic data for clues on the rate outlook.
The yen drew strength from comments by Bank of Japan Deputy Governor Kazumasa Iwata that the central bank was "very close" to ending its 4-year super-loose monetary policy.
Expectations for higher US interest rates have helped the dollar this year, but it faces a test later in the day from US retail sales and industrial output, though both cover periods before devastation caused by Hurricane Katrina.
Many players also looked ahead to the weekend elections in Germany for clues about the euro and the upcoming Group of Seven central bankers and finance ministers in Washington.
European Central Bank President Jean-Claude Trichet told European Parliament that the G7 would discuss currency issues at the meeting and he expected further revaluation of the Chinese yuan.
"There are several factors behind the dollar's fall today," said Mansoor Mohi-uddin, chief currency strategist at UBS in London.
"Trichet continues to signal the ECB is in neutral on interest rates but he is also adding to sentiment that the G7 will not pull back," he said, referring to the G7's long- standing call for more flexibility in Asian currencies, which is generally seen as negative for the dollar.
At 1200 GMT, the dollar traded 0.3 percent down on the day at $1.2307 per euro.
The single currency has been stuck in a range, floating between a three-month high of $1.2590 hit in early September and a mid-August low near $1.2125.
The dollar was 0.7 percent lower at 109.95 yen.
Iwata's remarks drove benchmark euro-yen futures to their lowest level since February 2001. That was just before the BOJ first launched its quantitative easing policy in which it keeps interest rates near zero.
The yen money market futures contract at one point priced in a three-month TIBOR rate of 0.345 percent in a year's time compared with the current 0.09 percent.
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