The dollar hit a three-week low against the euro on Wednesday after minutes from the US Federal Reserve's November 1 meeting published on Tuesday indicated that it could be close to ending its monetary tightening cycle.
The greenback managed to recover its earlier losses as liquidity thinned and volatility rose due to holidays in Japan on Wednesday and the US Thanksgiving holiday on Thursday.
"When you step back from everything we've seen the market is still stuck in a range, but the problem is that the intraday range is quite large," GNI currency strategist Mark Henry said.
The dollar fell in late New York trade on Tuesday after traders read the minutes to mean that some policy makers were less worried about inflation than about a continued rise in the benchmark interest rate.
But Bank of Tokyo Mitsubishi currency economist Derek Halpenny said that while the Fed minutes had increased near-term uncertainty on the outlook going forward, the market was incorrect in linking them to an imminent end to US rate hikes.
"I find it very, very difficult to believe that (Fed Chairman nominee) Ben Bernanke will be in a position on the 28th of March to conclude that he can pause in circumstances where, in our view, growth will be so strong," he said.
Halpenny added that the Fed funds rate, now at 4.0 percent, could possibly go to 5.0 percent by summer next year.
Richmond Federal Reserve President Jeffrey Lacker doused some of the speculation. Lacker, who will become a voting member of the Fed's rate-setting committee next year, told Reuters it was too soon to declare the Fed's rate increases over, stressing that inflation remained a risk amid solid growth.
The dollar hit its lowest level since November 4 at $1.1864, but profit-taking on euro gains later set in and saw the euro fall a quarter percent on the day. It was trading at $1.1782 by 1231 GMT.
The single currency showed a muted reaction to upbeat euro zone data, showing industrial orders had recovered in September to rise 1.1 percent from August, helped by a bounce in Germany, the currency bloc's biggest economy.
The dollar was at 118.64 yen, flat on the day.
Sterling held steady against the dollar after minutes from the Bank of England's November meeting showed a unanimous vote for steady rates at 4.5 percent, as expected.
The Fed has raised its benchmark interest rate 12 times in the past 18 months to 4.0 percent, making dollar deposits increasingly attractive to international investors.