The dollar eased further off last week's highs against the euro and yen on Tuesday as investors turned cautious ahead of Wednesday's assessment of the US economy by Federal Reserve chief Alan Greenspan.
US jobs data on Friday supported expectations the Fed would raise rates by 25 basis points later this month to 1.75 percent and sent the dollar one percent higher. But the numbers failed to provide a sustained boost to the greenback, with markets already pricing in a quarter-point rate hike this month.
Greenspan's testimony is expected to reiterate the Fed's stance that interest rates will have to rise at a moderate pace, and analysts question whether this will be enough to power the dollar higher again.
"The market is correcting Friday's move (after payrolls)," said Ian Gunner, head of foreign exchange research at Mellon Bank in London.
"People are looking towards Greenspan and waiting to see how the US will react after Labour Day."
Tuesday marks the resumption of US trading after a three day holiday weekend for Labour Day and by 1140 GMT, as the US day was getting underway, the euro had gained 0.25 percent to $1.2084, rising from Friday's low around $1.2040.
The dollar was fetching around 109.72 yen, down 0.35 percent on the day and off about a yen from the 2-1/2 week high of 110.70 hit on Friday following the jobs figures.
More information about the US labour market will be available at 1400 GMT, when Challenger, Gray & Christmas releases its report on job cuts and new hiring for August.
Friday's pick-up in non-farm payrolls came after two months of disappointing employment numbers.
But while it allayed concerns the US economy may be losing steam and gave the dollar a general boost, it was not strong enough to extend the greenback's gains ahead of Greenspan's appearance before the House Budget Committee on Wednesday.
The Fed has raised interest rates twice since late June and is widely expected to push them up to 1.75 percent on September 21.
Until then, any comments from the Fed will be closely watched, and Federal Reserve Bank of Dallas President Robert McTeer speaks at 1700 GMT on Tuesday.
Analysts said market caution was also driven by concerns ahead of Friday's release of US international trade data after the previous month's numbers sparked a sharp dollar sell off.
A record gap recorded in June raised worries over the country's ability to draw foreign capital to fund the shortfall. July's trade deficit is seen down to $51.75 billion from June's $55.82 billion.
"The anticipation of the Fed, Greenspan and the rate decision later is one side of the story. The other side is the trade data," said Shahab Jalinoos, senior currency strategist at ABN AMRO in London.
"The market is a bit long dollars since the payrolls numbers last week and it may try to take some profits before the trade figures."
The euro was little affected by news that eurozone growth was confirmed at 0.5 percent in the second quarter.
An earlier reading had already put eurozone quarterly growth at that rate, just a touch slower than the 0.6 percent recorded in January-March.
Unexpectedly strong German industrial production figures also had little impact as investors remained focused on the US economic outlook. Output rose 1.6 percent in July from June, double the Reuters forecast for a 0.8 percent rise.