The dollar's trade-weighted index hovered near a 15-month low on Tuesday on the view U.S. interest rates will stay low, while sterling fell after Fitch said the UK was the major economy most at risk of losing its AAA rating.
Analysts said investors lacked any catalyst to take the dollar much lower after its recent sharp falls, but they said the trend towards dollar weakness remained in place.
The euro quickly reversed an initial dip after a weaker-than-expected German ZEW survey showed investors more gloomy than at any time in the last four months.
The ZEW was a pretty weak number, but the fall in the euro wasn't huge initially and it quickly fizzled out, said James Hughes, market analyst at CMC Markets.
It looks like the whole theme of dollar weakness will dominate for some time to come, as long as (monetary and fiscal) stimulus remains in place, he added.
Expectations U.S. interest rates will stay near zero well into next year have encouraged investors to use the dollar to fund carry trades in higher-yielding assets, particularly when equity markets rally.
By 1049 GMT, an index of the dollar's performance against six major currencies was steady at 75.040 .DXY, reversing an earlier small rise. On Monday, the index dropped about 1 percent to a low of 74.93, its weakest since August 2008 and the biggest one-day fall since late July.
The euro edged up 0.1 percent to $1.5009 EUR=, nearing its 2009 high of $1.5064, though traders said a number of option strikes were lurking around the $1.5025 level.
The higher-yielding Australian dollar AUD=D4 was steady at $0.9295. The currency had earlier rallied as high as $0.9324 after strong Australian business confidence data though it stopped just shy of a 15-month high of $0.9330.
Sterling fell after Fitch Ratings said that of the four major economies with top-notch AAA status, the UK was the most at risk, sending the pound down sharply to shed as much as 1 percent on the day against the dollar.
David Riley, co-head of global sovereign ratings at Fitch, said if there was another significant fiscal stimulus package in highly-indebted Britain its rating would be at risk.
The Fitch news was a reminder of the longer-term issues facing the UK, said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.
The pound slipped as far as $1.6600 GBP=D4, well below a three-month high of $1.6844 reached on Monday, and fell to beyond 90.00 pence per euro EURGBP=D4.
By 1049 GMT, it had pared some of those losses and was down 0.3 percent against the dollar at $1.6706, while the euro was up 0.4 percent at 89.82 pence.
Elsewhere, the yen dipped, pressured as European shares edged into positive territory and encouraged investors to turn back towards perceived riskier currencies.
European shares .FTEU3 rose 0.1 percent, helped by gains in banks after HSBC (HSBA.L) said loan impairment allowances for its U.S. consumer finance business fell in the third quarter, the first fall since 2006.
The euro rose 0.2 percent to 135.31 yen EURJPY=R while the dollar also edged up 0.1 percent to 90.14 yen JPY=.
A host of officials from the Federal Reserve are scheduled to speak on Tuesday and the market will watch what they say regarding the outlook for interest rates and the eventual withdrawal of easy monetary policy measures.