The Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite fell dramatically at the open, dragged down by disappointing earnings from industrial bellwethers Caterpillar Inc and 3M Co. The three indices had recovered some of those losses by midafternoon, but remained lower than their close on Monday.

"The stock market has everyone's attention. The dollar/yen is moving almost tick-to-tick with stocks," said David Gilmore, partner at FX Analytics.

Although the dollar is also considered a safe-haven currency, weakness in US markets will nevertheless disadvantage the greenback against other safe havens. The dollar fell against the yen by 0.32 percent, last trading at 112.45 yen. Against the Swiss franc, the dollar was down 8 basis points, last at 0.995 francs.

Caterpillar tumbled 5.8 percent after the heavy-duty equipment maker maintained its 2018 earnings forecast, after having raised it in the previous two quarters. 3M slid 5.2 percent after cutting its full-year profit outlook due to currency headwinds.

That reignited worries over the impact of rising borrowing costs, wages and tariffs on corporate profits.

Developments in US policy, notably President Donald Trump's tax cuts, have bolstered investments in US assets. That has contributed to the dollar's performance this year, but that narrative appears to have come to an end, said Mazen Issa, senior FX strategist at TD Securities.

"With midterm (congressional) elections around the corner, investors are a bit nervous and are looking to see if there will be policies in the pipeline that will continue to support the sugar high of US asset prices."

The dollar index, a gauge of the greenback's value against six major currencies, fell by about 10 basis points over the day, last at 95.927.

The euro initially fell after the European Commission rejected Italy's draft 2019 budget on Tuesday, saying it brazenly broke EU rules on public spending, and asked Rome to submit a new one within three weeks or face disciplinary action.

Worries about Italy's spending has bred some doubt about the European Central Bank's plan to raise interest rates next summer, and that has hurt the euro. But on Tuesday, it rose 0.1 percent, last at $1.1473.