The dollar retreated across the board on Wednesday as U.S. Treasury yields eased from more than one-year highs, although most investors are convinced the greenback's upward trend is intact.
The dollar fell especially hard against Japan's yen and the Swiss franc, which are seen as safe havens which usually gain when higher-risk assets like equities fall.
U.S. bond yields retreated from 13-month highs reached overnight as investors awaited further signs of whether the economy is gaining enough strength for the Federal Reserve to pull back on its bond purchases.
(Read More: US Bonds Flat After Weak Overnight Session)
"In absence of news, the primary thing that we've been trading off of for the last 48 hours has been U.S. Treasury yields," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York.
"As bond yields decline a little bit, there's profit-taking," he said. "The dollar has been very strong for the last several weeks."
The dollar lost 1.3 percent to 101.05 yen, having hit a session low of 100.73 yen, near a two-week low of 100.68 yen set on Friday.
Against the Swiss franc, the dollar fell 1.5 percent to 0.9618 franc.
Losses in stocks also boosted the yen and Swiss franc. These currencies are seen as safe havens and usually gain when risky assets such as equities fall.
The dollar has reversed some of its sharp gains seen over recent weeks sparked by mounting speculation the Federal Reserve could reduce its monetary stimulus.
Against a basket of currencies, the dollar index fell 0.6 percent to 83.61, pulling back from a three-year high of 84.498 hit on May 23.
"Someone started the ball rolling with a large dollar sell order across the board and then just triggered stops in dollar/yen, euro/dollar, the Australian dollar, the New Zealand dollar. We had many stops on our board which flew through," a London-based trader said.
(Read More: Aussie Dollar Is Now the World's 'Weakest Currency')
Recent positioning data showed speculators increased long dollar positions to their highest since at least June 2008 in the week to May 21 and increased short yen positions. This allowed the potential for a reversal as investors take profit on those bets.
Volatility in equity markets in recent days has caused the yen to recover from a 4 1/2-year low of 103.73 yen per dollar set last week.
"There is still scope for dollar/yen to continue lower, and we could see a dip below 100 yen level over the next few weeks," said Ian Stannard, head of European currency strategy at Morgan Stanley.
The euro rose 0.7 percent to $1.2940, extending gains after stop-loss buy orders were triggered on the break above $1.2910, traders said. Further gains would see it target last week's peak of $1.2998.
Adding to gains in the euro was a bigger-than-expected rise in German inflation, although the currency's gains could be temporary as the data may not be enough to reduce the likelihood of further monetary easing by the European Central Bank.
The OECD called on Wednesday for the euro zone central bank to take more action to lift the region out of recession.
The Australian dollar rose 0.2 percent to $0.9636, recovering from a 19-month low of $0.9526 hit earlier in the global session.