The dollar recovered from lifetime lows against the euro and a major currency basket on Monday, helped by speculation the Federal Reserve will cut U.S. interest rates by only a quarter of a percentage point this week, rather than by half a point.
The Fed is widely seen cutting rates by a quarter point to 4.5 percent on Wednesday from the current 4.75 percent, but some analysts said the U.S. central bank may try to curtail expectations for further easing later this year.
They cited recent newspaper reports that suggested some members of the Federal Open Market Committee were less inclined to cut interest rates.
According to anecdotal reports, there is some resistance among Fed insiders to the notion of a guaranteed rate cut, according the Financial Times. Many would have preferred to go into the meeting with market odds more evenly balanced, which would give the central bank greater latitude to make its determination without risking market turmoil.
David Powell, senior currency strategist at IDEAglobal, said talk of a half a percentage point easing on Wednesday by the Fed seemed to have faded and that had helped the dollar recover from earlier losses.
Speculation is that on Wednesday we will only get a 25 basis points rate cut and a Fed statement that tries to limit expectations of further cuts, Powell said.
In early New York trading, the euro was little changed on the day at $1.4386, having earlier traded at a new high of $1.4438, according to Reuters data, and taking its year-to-date gains to about 9.00 percent.
The dollar index, which tracks the greenback's progress versus a basket of six major currencies, was little changed at 77.046, coming back from 76.777, the lowest in the index's more than 30-year history.
A weak dollar earlier helped drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high above $794 an ounce, boosting the Australian dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.
Buoyant equity markets, however, helped the dollar strengthen against the yen, as investors' search for yield drew them back into carry trades where low-yielding currencies are sold for units offering higher returns.
Against the yen, the dollar rallied 0.6 percent against the yen to 114.79 yen as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in risky carry trades.
The euro gained about half a percent versus the yen to 165.15 yen.
The high-yielding Australian dollar vaulted as high as US$0.9272, the highest since 1984, while against the Canadian dollar the greenback slid as low as C$0.9579, a 33-year low.
Analysts said global interest rate dynamics remain generally supportive of carry trades, providing good liquidity in key areas of the world.
Despite economists' downgraded U.S. growth forecasts, the 'decoupling' story that many have bought into suggests the rest of the world can carry on fairly well without the U.S. being the engine of global growth, says HSBC Bank in a research note.
And with that, risk appetite can exist at reasonably strong levels, it added.
U.S. data due this week include the first estimate of third quarter economic growth on Wednesday and October's non-farm payrolls report on Friday. Some analysts said U.S. economic reports this week will do little to dissuade markets from the view the Fed will cut rates further over the coming months.
The markets are also looking to end of the week payrolls data which people think would be less than sexy -- a below trend forecast of 80,000 new jobs, said Matt Kassel, director of foreign exchange at ING Capital Markets in New York.
(Additional reporting by Jamie McGeever in London)