Profit-taking drove the dollar down on Thursday as markets pulled back one day after a hawkish statement from the US Federal Reserve that pushed the greenback up sharply against other major currencies.
The Fed's hint that it was likely to raise interest rates in December remained supportive of the dollar's long-term future. Still, the euro, British pound and Swiss franc all gained against the greenback with markets consolidating as traders awaited further US economic data.
"I think it's just kind of a one-day thing," said Mark McCormick, FX strategist at Credit Agricole CIB, of the dollar's Thursday tumble. "It's really going to matter how the data plays out next week. We've got consumer sentiment, manufacturing PMI and payrolls coming up, so if we get in-line expectations for any of those numbers I think that's going to be good for the dollar."
The dollar briefly rallied on Thursday after the release of US gross domestic product figures that fell short of economists' expectations, but those gains were short-lived.
After the Fed's statement on Wednesday, the dollar index rose to its highest since early August. The statement put a December rate increase firmly in play and rebutted earlier speculation that China's cooling economy would delay this move.
The economy grew 1.5 percent in the third quarter, just missing the 1.6 percent estimate from economists in a Reuters poll.
Consumption was strong, with consumer spending up 3.2 percent and advance sales growing by 3 percent. A drawdown in inventories weighed on the overall figure.
The dollar index, which measures the greenback against six major currencies, fell throughout the day and was down 0.5 percent at 97.276.
The euro rose 0.5 percent to $1.0974, after falling on Wednesday to its lowest since August. The pound picked up 0.38 percent to $1.5317 while the dollar was flat against the Japanese yen at 121.11.
China's decision to change its 35-year-old one-baby policy had a short but noticeable impact on the markets, with the currency of dairy exporter New Zealand jolting upward before reversing course and falling 0.1 percent.
Win Thin, global head of emerging markets at Brown Brothers Harriman & Co, said he believed the new policy would benefit China and trading partners like New Zealand in the long term since bigger families in China would result in more spending, and therefore more trade.
"That (policy decision) will help New Zealand, he said, "but this is going to take decades to have an impact."