NEW YORK: The dollar fell to a three-week low on Tuesday, with investors cautious ahead of a key testimony by Federal Reserve Chairman Jerome Powell later in the session, in which he might provide further clues about the direction of future interest rates.

Powell will testify before the Senate Banking Committee on the first day of a two-day appearance before lawmakers. Market watchers expect him to underline the Fed's sensitivity to asset prices and deliver an upbeat assessment of domestic growth prospects.

"The key focus of the market will be on whether Mr. Powell will deviate from his dovish stance," said Boris Schlossberg, managing director of FX strategy, at BK Asset Management in New York.

"This appears unlikely as the history of Fed policy changes suggests that it will stick to an easing course to engineer a soft landing of the economy before resuming normalization," he added.

Money markets have ruled out any more rate hikes for the remainder of the year with an 80 percent probability of a rate cut by January, 2020.

A report, meanwhile, showing US housing starts fell to a more than two-year low in December did not help the dollar's cause, further affirming expectations that Powell will maintain his dovish views.

Data showed housing starts dropped 11.2 percent to a seasonally adjusted annual rate of 1.078 million units last month, the weakest reading since September 2016.

Against a basket of other currencies, the dollar was down 0.1 percent at 96.34, after earlier hitting a three-week trough of 96.253.

The dollar was also down 0.2 percent versus the yen at 110.74.