The dollar slipped from recent highs on Wednesday as investors assessed how much more the Federal Reserve's expected interest rate hikes could boost the greenback, which has enjoyed a good run so far this year.
In technically-driven trading, the dollar failed to break a key resistance level around $1.1950 per euro. This, along with talk of buying from central banks below $1.20, prompted investors to buy back euros.
Earlier in the day the dollar scaled a 17-month high against the yen and an 11-week peak beyond $1.74 against sterling on expectations for higher US interest rates that would bolster the appeal of US assets.
"People were trying to push the dollar higher but when they failed they started covering their short positions," said Hiroshi Morioka, head of foreign exchange at Bank of Tokyo-Mitsubishi in London.
"Market focus is still on interest rate differentials. But the dollar goes up and down and the market is lacking excitement."
By 1140 GMT the dollar stood at $1.2020 per euro, down 0.2 percent on the day and off earlier 1-week highs, which were a little below 3-month highs set last week.
"It's really a short squeeze after the dollar moves of the last couple of days," said Lee Ferridge, senior proprietary trader at Rabobank. "There is talk of central bank euro buying but it's a convenient story to fit what's happening."
The dollar has gained more than 10 percent against the euro since the start of the year.
It was steady on the day at 114.61 yen after hitting 114.75, its highest in 17 months.
Sterling fell to a low of $1.7392 before recovering sharply to $1.7510. The currency had been undermined by concerns the Bank of England might cut interest rates again.
Fed Chairman Alan Greenspan is expected to speak on economic flexibility at 1230 GMT. Other Fed officials Susan Schmidt Bies, Richard Fisher and Mark Olson are also scheduled to speak later.
Minutes released on Tuesday of the Fed's September 20 policy-setting meeting made clear the central bank's intention to keep inflation at bay and to keep raising interest rates.
The key US rate stands at 3.75 percent, compared with 2.0 percent in the euro zone and near zero in Japan.