The dollar posted sharp losses on Monday as growing concerns that the cycle of rising US interest rates may be ending offset news of strong capital flows into the United States.
The dollar was also undermined by a weaker-than-expected reading of manufacturing activity in New York state, as well as rising geopolitical tensions over Iran's nuclear ambitions, traders said.
"The dollar's muted reaction to stronger-than-expected TICS data and deteriorating sell-off following the 6-month lows in the NY Fed business index suggests the bears may be here to stay," said Ashraf Laidi, chief currency analyst at MG Financial in New York.
"The fact that the dollar is being increasingly and easily punished by weak US data and event risk more than it is rewarded by strong data is a classic sign of deteriorating sentiment. Currency markets cannot dismiss a currency's weakening sentiment, especially when the tide is ebbing in the futures market," he added.
Dollar sentiment was also dampened by a report in The Wall Street Journal on Friday that said some Federal Reserve officials are not convinced they need to keep raising interest rates beyond an expected move in May.
While there was nothing particularly surprising in the article, analysts said with several markets in Europe closed for a long weekend, investors placed added emphasis on the report.
The euro broke above $1.22 to trade as high as $1.2289, and by late afternoon was up 1.2 percent at $1.2253.
Against the Japanese yen, the dollar fell 0.8 percent to 117.79 yen.
The dollar index ended 1.09 percent, according to Reuters data, its largest one-day percentage drop since January 23.
On Tuesday, the big event would be the release of the Federal Open Market Committee (FOMC) minutes for the March 27-28 meeting, which could have the greatest potential influence on the dollar's direction.
The dollar was off 1.4 percent against the Swiss franc at 1.2795 francs, while sterling was up about 1 percent on the day at $1.7691.
A US Treasury Department report earlier in the session that showed net capital inflows of $86.9 billion in February - more than enough to cover the country's $65.7 billion trade deficit in that month - initially appeared to stem dollar selling, though the report's impact quickly faded.
Analysts had expected net inflows of $62.8 billion.
Later comments from Chicago Fed President Michael Moskow, who is not a voter on the FOMC this year, saying inflation is near the upper end of its price stability range and that monetary policy must be vigilant, did little to support the dollar either.
Adding to the dollar's woes was data showing a decline in US home builder sentiment this month to its lowest since November 2001. The data reflected a steep slowdown in home sales, and was certainly sharper than the Fed would like, analysts said.
"Although on an Easter Monday it probably won't get the attention it deserves, the data is a definite dollar-negative and will have some influence in padding more negative dollar sentiment," said Alan Ruskin, chief international strategist, at RBS Greenwich Capital in Connecticut.