The dollar rose to session highs against the euro and yen on Wednesday after news that June housing starts were slightly higher than expected, a small sign the sector may be improving prospects for the economy.
However, building permits were the lowest in a decade and separate data showed U.S. core inflation in June was in line with forecasts, keeping dollar gains capped and expectations intact that the Federal Reserve will keep benchmark overnight interest rates steady for the time being.
Permits obviously a little weaker than expected, with housing starts coming in slightly above expectations, said Omer Esiner, foreign exchange market analyst with Ruesch International in Washington. That is somewhat reassuring for the dollar.
The euro slipped 0.2 percent from Tuesday to $1.3754. Dealers said some people might be taking profits on the euro's earlier surge to a record high of $1.3834, according to electronic platform EBS.
The dollar cut its losses against the yen to trade at a session high of 122.29 yen, largely unchanged on the day.
The dollar fell to a 12-year low against a basket of major currencies earlier on Wednesday, hurt by fears that troubles in the U.S. housing sector could necessitate rate cuts at a time when other central banks are tightening policy.
The main focus of the market was semi-annual testimony by Federal Reserve Chairman Ben Bernanke. Dealers are expecting him to acknowledge the impact of the deteriorating subprime mortgage industry on the housing sector.
(Additional reporting by Nick Olivari)