"The focus is more on the ECB's liquidity operations, and unless that is addressed, we expect the euro/dollar to remain a pain trade, staying in a range," said Geoffrey Yu, strategist at UBS.
The euro lost its gains on the yen while the dollar's advance on the Japanese currency was pared back. The greenback traded at 104.20 yen, up 0.04 percent after having been as high as 104.74 yen.
The dollar/yen pair has a robust correlation with rate-sensitive U.S. two-year yields. They rose after the Wall Street Journal said the Fed may announce a further reduction to its monthly bond purchases at its Jan. 28-29 policy meeting, to $65 billion from the current $75 billion.
"The report is not all that surprising but it did get the 10-year yield to move higher, but it is now moving back down," said Osborne of TD Securities.
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A reduction in the Fed's stimulus program would match the market expectations in a recent Reuters survey. Still, traders said the WSJ article helped to nudge the dollar higher against the yen.
"On the yen side, there is some positioning that the Bank of Japan may sound move dovish at the end of its policy meeting this week. We actually expect them to upgrade growth forecasts and that could actually see some correction in the dollar/yen in the short term. In the medium term, we expect the pair to rise," said Manuel Oliveri, FX strategist at Credit Agricole.
Key for the yen this week is the outcome of the Bank of Japan policy meeting on Wednesday. The BOJ is expected to retain a wait-and-see approach, having last year launched a massive stimulus program.