The dollar gained ground on Monday, rebounding on concern that recent selling sparked by expectations the Federal Reserve could make a pause its two-year run of rate rises was overdone.
Some analysts also cited relief buying of the US currency as eurozone government bonds fell after Israel said on Sunday it was prepared to back the deployment of a temporary international peacekeeping force in southern Lebanon.
The dollar slid last week after Fed Chairman Ben Bernanke said inflation would likely ease in coming quarters as growth slows, prompting market players to scale back the chance of another rate increase.
"The market is priced 50/50 for an August rate hike and it's quite rare for the Fed to allow the market to have such a mixed view," said Chris Turner, head of foreign exchange strategy at ING Financial Markets.
"Perhaps at the back of people's minds the prospect of an August rate hike is back on the agenda," he added.
By 1115 GMT, the euro had fallen 0.5 percent to $1.2623. The single currency was still up from a three-month low of $1.2456 hit last week.
Calyon senior currency strategist Daragh Maher said while Bernanke's testimony was less upbeat than the market was priced for, it was still relatively balanced.
"The Chairman will have been pleased with the market reaction which saw rate expectations retrace to make the August outcome virtually a 50:50 call, a market standing which provides the Fed with the greatest degree of policy flexibility," he said.
The dollar rose half a percent on the day to 116.63 yen but was still off a three-month peak of 117.88 yen hit on July 19. The euro was down 0.2 percent at 147.38 yen, but still near last week's record high of 147.90 yen.
"Maybe there's a slight glimmer of optimism in the Middle East and that could be a catalyst to tempt some of those who were bearish on the dollar last week," Rabobank markets strategist Jeremy Stretch said.
Such hopes hurt the traditional safe-haven Swiss franc, which slid almost one percent against the dollar to 1.2469 francs and hit a 3-month low against the euro at 1.5752.