The dollar came under renewed pressure on Wednesday as an inversion in part of the Treasury yield curve caused concern about a possible U.S. recession.
The greenback has enjoyed months of unrivalled performance against its peers but that could be undermined by growing concern about slowing U.S. growth.
Those worries have pushed two-year yields above those of longer-dated, 5-year notes for the first time in more than a decade.
The so-called "inversion" of the yield curve sounds an alarm to many investors about a looming U.S. economic slowdown.
"In the initial phase of the inversion of the yield curve markets are worried and react more aggressively to weak data than to strong data," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
"I think the dollar can be in correction-mode in a yield-curve inversion environment."
Against a basket of six rivals, the dollar edged down 0.1 per cent to 96.832. The currency has fallen 0.4 percent this week but is only half a percent off a 17-month peak of 97.693 touched on Nov. 12.
The recent weakness in the dollar comes against the backdrop of a temporary truce in the U.S.-China trade conflict agreed over the weekend which has bolstered investor confidence in riskier currencies versus the safe-haven greenback.
The dollar has been under pressure since Federal Reserve Chairman Jerome Powell said last Wednesday that U.S. interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in the pace of rate hikes.
Without a resolution on the European Union's dispute with Italy over its proposed budget, or euro-specific positive developments, euro/dollar is likely to trade in a range of $1.12 to $1.16, said analysts at Commerzbank.
The Australian dollar slumped more than 0.7 percent against the greenback as disappointing economic data further dimmed the chance of a rise in rates. The Aussie moved sharply off a four-month top of $0.7394 hit early in the week.
The Aussie, often viewed as a barometer of Chinese growth, had risen early in the session after China's Commerce Ministry said that a Chinese trade and economics delegation had held a successful meeting with the United States.
U.S. stock and bond markets will be closed on Wednesday for a national day of mourning for former U.S. President George H.W. Bush, who died on Friday.
(With inputs from agencies.)