The dollar retreated on Monday as investors took profits from last week's gains and awaited the next few days' US data to see whether the numbers would support the Federal Reserve's optimism on the US economy. The greenback rallied last week as upbeat comments by Fed Chairman Alan Greenspan on the world's largest economy fuelled views that the central bank could raise interest rates at a faster pace.
The market has viewed measured monetary tightening by the Fed as dollar-negative. Higher rates generally would boost the allure of dollar-denominated investment returns.
"The dollar is in a bit of consolidation mode after last week's sharp move and ahead of some key data this week," said Omer Esiner, market analyst at Ruesch International in Washington D.C.
"I think traders are looking to see whether the numbers will match Greenspan's optimistic outlook on the economy. If we see that the numbers are consistent with Greenspan's outlook, then I think the dollar will continue to push higher," he added.
Data on US consumer confidence on Tuesday, durable goods on Wednesday and gross domestic product on Friday will be crucial tests for the dollar after Greenspan said last week that recent weaknesses in the US economy were transitory.
Traders are also watching for the July employment report due at the end of next week.
By late afternoon in New York, the euro traded up 0.4 percent against the dollar at $1.2141. The dollar had risen to a July high of $1.2084 on Friday.
Earlier, the dollar trimmed some of its losses against the euro after an unexpected 2.1 percent increase in June US existing home sales, which are generally not seen as market-moving figures.
"We haven't broken support of $1.2100, so it gives people who are long euros hope that this is going to be the bottom," said John Hazelton, director of foreign exchange at PNC Bank in Pittsburgh.
Against the yen, the dollar was down 0.17 percent at 109.94. It was 0.2 percent lower versus the Swiss franc at 1.2644. Sterling, meanwhile, rose to $1.8397.
Overall, analysts said dollar sentiment has improved following Greenspan's statements last week, although some strategists are still hesitant to take a definitive bet on a sustained rally in the US currency.
"I think dollar sentiment is not too bad. Based on the charts, people are running out of reasons for fresh dollar selling," said Sean Callow, currency strategist at IDEAglobal in New York.
Analysts said market players may also be hesitant to take on fresh long positions in the dollar due to the possibility of terror attacks during the Democrats' national convention, which begins in Boston on Monday, and this could limit the dollar's upside this week.