The dollar bobbed near a one-week high against the euro on Tuesday as investors waited to see if forthcoming US data and a speech by Federal Reserve Chairman Alan Greenspan would reinforce optimism over the US economy.
Greenspan is due to speak at the American Bankers Association Convention at 1430 GMT and while he might confine his comments to banking issues, any remarks about the economy are widely expected to echo the upbeat tone struck by other Fed officials this week.
Economic news from the eurozone was less cheering, however, with data showing German unemployment rising for an eighth consecutive month and the euro's dominant services sector expanding at its slowest pace in over a year.
"Soft data out of Europe is helping the dollar hold on to yesterday's gains," said Daragh Maher, senior currency strategist at Calyon.
By 1155 GMT, the dollar was steady at $1.2286 per euro and 1.2645 Swiss franc, holding onto gains of more than one percent on Monday. The greenback was firm at 111.00 yen, testing the upper end of the narrow range it has held for the past two months.
The dollar's rebound on Monday was partly fuelled by relief that a weekend Group of Seven meeting had not put additional pressure on China to revalue its yuan peg, a move that could have triggered a broad-based slide in the US currency.
A survey of the US services industry at 1400 GMT is expected to show further strong growth in September and will be closely watched ahead of Friday's crucial monthly US jobs report.
Economists polled by Reuters expect a strong US retail sector and a vibrant housing market to have lifted the ISM non-manufacturing index to 59.0 in September from August's already robust level of 58.2. The employment component of the index is also expected to rise.
"The ISM is a key thing today because it often has a reasonable relationship with payrolls and, if it is strong, it could lead to a continuation of this week's dollar rally," said Shahab Jalinoos, senior currency strategist at ABN Amro.
The non-farm payrolls report on Friday is expected to show an increase of 148,000 new jobs, up from 144,000 in August, according to a Reuters poll.
Germany's employment situation showed little sign of improving with the seasonally-adjusted jobless total rising by 27,000 during the month of September, more than double the 10,000 increase forecast by economists.
Germany's economy is growing at its strongest pace in three years but the recovery is still not helping the labour market as layoffs linked to corporate restructuring continue to outpace new hiring.
Supportive comments from several Fed officials on Monday also gave the dollar a boost by reinforcing expectations the US central bank was keen to raise interest rates to more normal levels.
Philadelphia Fed President Anthony Santomero said official interest rates near 45-year lows were not "sustainable and compatible" with a long-run US expansion, hinting at further hikes to come.
Fed Governor Susan Schmidt Bies said the latest batch of US economic figures showed the economy had overcome its mid-year soft patch.
Last week, the dollar plunged to a two-month low of $1.2444, driving some technical analysts to warn that a further fall beyond $1.2450 could push the dollar past key chart levels and create a bigger euro rally.