The dollar ticked lower against the euro and the yen on Tuesday, ahead of US economic data and speeches from Federal Reserve policymakers that could shed light on whether US interest rates are near a peak.
The euro recovered after falling sharply against the dollar in knee-jerk selling after data from the ZEW Institute showed German investor sentiment fell sharply in May.
"There was a knee-jerk reaction to the German data but the short-term nature of the selling confirms the market is bearish (on the dollar) with people buying the euro on dips," said Niels From, currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt.
The US producer price index for April due at 1230 GMT will be closely watched for clues on the Fed's next move, given the central bank's focus on the threat of inflation in deciding policy.
Economists forecast the index to show a rise of 0.8 percent, compared with a 0.5 percent rise in March. Data on US housing starts is due at the same time, with a slowdown forecast.
Fed Chairman Ben Bernanke is due to speak at 2315 GMT along with other Fed officials Timonthy Geithner, Mark Olson and Jack Guynn, who take the podium beforehand.
The dollar bucked a prevailing downtrend on Monday, rebounding from a one-year low versus the euro on global market volatility including a sell-off in commodities and stocks on worries that economic growth may suffer.
By 1145 GMT the euro was up 0.15 percent on the day at $1.2818 after falling as far as $1.2770 after the ZEW data.
The single currency lost more than 1 percent on Monday as the greenback rallied and is still some way from the one-year high of $1.2971 hit early on Monday.
The euro was steady at 141.36 yen after earlier hitting a 1-1/2 month low of 140.85 yen.
Japanese economics minister Kaoru Yosano said that any rapid and speculative move in currencies should be avoided.
The dollar was at 110.27 yen, down 0.2 percent on the day and at 1.2111 Swiss francs, flat on the day.
The Mannheim-based ZEW institute said its German economic expectations indicator, based on a survey of 314 analysts and institutional investors, fell to 50.0 from 62.7 in April and way below a Reuters forecast for 60.0.
However, the euro was underpinned by upbeat comments from key European Central Bank policymakers, who underscored the prevailing market view that the bank will deliver a euro-supportive interest rate hike next month.