The Dollar fell against the Euro on Tuesday as US housing starts plunged to their lowest level in more than 17 years in May, casting more doubt over an anticipated early Federal Reserve interest rate increase. But losses were limited, with traders also paring expectations of tighter monetary policy in the euro zone after ECB Executive Board member Lorenzo Bini Smaghi said a 25bp hike should bring inflation below its target.

Housing starts set an annual pace of 975k units in May, the lowest since March 1991. US industrial production slipped unexpectedly in May and a surprise widening in the Q1 current account deficit. Germany's ZEW index of economic sentiment for June came in sharply below forecasts, pushing down euro zone yields and implied rates.

EurUsd rose up to 1.5551 and last traded up 0.34% at 1.5517. UsdJpy fell 0.29% to 107.91. UsdChf went down 0.34% to 1.0412. GbpUsd dropped as low as 1.9470 and was last -0.28% at 1.9574.

Short-term interest rate futures showed around a 55% of 25bp interest rate increase in August, down from 90% late on Monday. Speculation of an early policy tightening from the US central bank ignited a Dollar rally last week as this would restore some of the greenback's allure to investors seeking higher returns. Analysts remain convinced that the Fed will raise interest rates by year-end, citing an unexpected 1.4% rise in the headline producer price index in May, which pointed to growing inflation pressures already highlighted by the central bank.

Euro zone interest rate expectations were also trimmed after the European Central Bank's Smaghi indicated a single hike would be sufficient to bring back inflation below the bank's 2% target.