The dollar struggled on Wednesday as a drop in US consumer confidence sharply contrasted with a strong German business survey and injected worries into the market that the dollar's interest rate advantage could narrow.
Data on Tuesday showed the Conference Board's confidence index for October fell to a two-year low of 85.0, fuelling concerns that soaring oil prices could curb US consumer spending.
The euro was also supported by a rise in Germany's Ifo business climate index to a five-year high in October.
"Dollar buying has lost steam as the euro strengthened," bolstering the euro/yen and capping the dollar/yen, said a senior trader at a Japanese bank.
"In the short-term, the euro has more upside potential, possibly advancing to $1.22-1.23, though the long-term dollar bull trend remains intact," he said.
The dollar's widening rate advantage over the euro and the yen has been the main driver of the US currency's bull run this year.
But a view that the European Central Bank could raise rates sooner rather than later has given the euro a boost, traders said.
"The Ifo survey confirms a view the ECB will start raising rates in January-March," said Mitsuru Yaguchi, senior economist at Mitsubishi UFJ Securities.
ECB Governing Council member Axel Weber said on Tuesday that the central bank was on high alert for inflation dangers although it was not preparing for an imminent rate rise.
The euro was little changed at $1.2105, not far from a one-week high of $1.2118 hit on Tuesday.
The single currency bought 139.30 yen, just below a six-month high around 139.45 yen struck earlier in the session.
The dollar changed hands at 115.05 yen, little changed from late US levels on Tuesday, when it fell as low as 114.61 yen.
Dollar bulls dumped the currency after it failed to break through key resistance, particularly around 116 yen - a level blocked by hefty offers from option players and Japanese exporters.