The currency initially inched higher as Powell stayed on script at a US Senate Banking Committee hearing on Tuesday, but it slipped in his question-and-answer session with US senators.

In prepared testimony released in advance of two days of hearings on Capitol Hill, Powell said the Fed would remain "patient" in deciding on further interest rate hikes, reaffirming the policy shift made by the central bank in January.

The greenback's earlier advance was also helped by news of a jump in the US consumer confidence index, which came as Powell

spoke.

"We think the Fed is unlikely to raise interest rates again this cycle," said Andrew Hunter, senior US economist at Capital Economics in London.

"It's true that financial conditions have eased in recent weeks. But clear signs of weakness have emerged in the domestic economy with the dreadful December retail sales followed by weakness in industrial production and durable orders."

Hunter added that he expects a further US slowdown this year, which should convince the Fed to begin cutting rates again by early 2020.

Money markets have priced in as much, ruling out rate hikes for the remainder of the year, with an 80 percent probability of a rate cut by January 2020.

In afternoon trading, the dollar index, a measure of its value against a basket of other currencies, fell 0.4 percent to 96.002, after hitting a three-week trough of 95.971.

The euro, meanwhile, rose 0.3 percent versus the dollar to $1.1393, while the greenback slid 0.4 percent against the Japanese yen to 110.57.

The dollar earlier benefited from a jump in the US consumer confidence index for February to 131.4, from a revised 121.7 reading in January.

That confidence report offset data showing US housing starts falling to a more than two-year low in December.

Improving risk appetite lifted the British pound following media reports Prime Minister Theresa May was considering delaying the March 29 deadline for the UK's exit from the European Union.

"With political risk, if you can delay it or remove the prospect of a no-deal Brexit, it will always be met with optimism and a rally in the currency," said Erik Nelson, currency strategist at Wells Fargo Securities in New York.

The pound was last up 1.3 percent at $1.3270.