The dollar slid from a five-week high on Monday, pressured by a weak manufacturing index in New York state and as it consolidated gains made last week amid fears about the debt ceiling and the U.S. economy.
In emerging markets, the Turkish lira sank to a near record low as weekend elections looked headed for a runoff, while the Thai baht rallied after a more decisive election result.
The greenback took an early dive after data showed the New York Federal Reserve's Empire State manufacturing index plunged to -31.8 this month from a reading of 10.8 in April.
Action Economics in its blog wrote that the Empire State fall was the largest decline since April 2020 and the lowest since January's three-year trough of -32.9.
The dollar's fall came after it notched its best weekly performance on Friday since September last year.
"I think we're just consolidating today after a big move in the dollar last week," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
"The things that have weighed on the dollar recently have not gone away, such as the debt ceiling, even though there has been some progress made."
President Joe Biden is scheduled to meet with congressional leaders on Tuesday for face-to-face talks, a day before he leaves for a meeting of the Group of Seven nations in Japan.
Though the two sides did not appear close to an agreement, the White House has not ruled out the annual spending caps that Republicans say must accompany any increase in the nation's $31.4 trillion debt limit.
In late morning trading the dollar index , which measures the greenback's value against six major peers, fell 0.2% to 102.48. Earlier in the session, the dollar touched a five-week high of 102.75.
Analysts have said many factors could be behind the dollar's recent strength, including concerns about U.S. inflation and safe-haven buying driven by fears about the debt ceiling standoff and global economic growth.
Alvin Tan, head of Asia FX strategy at RBC Capital Markets, said a pick-up in U.S. bond yields over the last two days had supported the currency.
U.S. yields rose on Friday and Monday after a University of Michigan survey of consumers' long-term inflation expectations jumped to the highest since 2011.
That put a possible Fed rate hike next month back in play, with traders laying down those odds at 17%.
The euro was up 0.2% against the dollar at $1.0875, rebounding after falling 1.54% the previous week.
The dollar was up 0.3% against the yen at 136.14, while sterling was 0.5% higher at $1.2513, rebounding after last week's 1.45% fall.
Elsewhere the dollar was last up 0.5% at 19.67 Turkish lira. It earlier jumped to 19.7 for the first time since March 10, when it hit a record high of 19.8 on a volatile trading day.
The dollar sank 0.5% to 33.81 baht in onshore Thai trading. Thailand's opposition parties secured a stunning election win on Sunday.
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