The dollar pulled off the previous session's lows on Wednesday, awaiting any hints Federal Reserve chief Alan Greenspan might give on the outlook for US interest rates after soft consumer data the previous day.
US consumer confidence figures released on Tuesday showed a sharp decline in February, making the chances of dollar- boosting US interest rate rises from 1.0 percent a more distant prospect than the market had been anticipating.
Greenspan testifies before the House Budget Committee on the economic outlook and fiscal issues at 1500 GMT.
Analysts doubt he will go beyond recent pledges of patience on monetary policy and optimism on the labour market but they will scrutinise his comments nonetheless.
"The crux of anything he says at the moment is whether you can glean anything fresh on the timing of an interest rate move," said Mark Henry, currency strategist at GNI in London.
"The dollar has suffered over the past two years for being a low interest rate currency and higher interest rates would increase demand for the dollar and send a signal of confidence in general that the US economy is over the worst."
By 1300 GMT, the dollar had inched up 0.4 percent on the day to $1.2635 per euro, having fallen around a cent on Tuesday to $1.2713 after US consumer confidence data.
The greenback has had a turbulent few weeks, hitting a record low beyond $1.29 to the euro earlier this month and then staging a hefty rebound to a three-week high of $1.2450 on Monday.
The day's out-performer was sterling, which benefited from an upward revision to UK 2003 growth. It hit a new one-year high against the euro and a five-year high on the yen, taking its trade weighted index to the strongest level since December 2002.
Analysts said news German Chancellor Gerhard Schroeder planned to raise the issue of the euro's appreciation with top US officials in a trip to the United States this week also introduced an element of caution against pushing the euro up.
German officials are concerned the euro's rise is harming export-led recovery in the region's largest economy.