The dollar gained after U.S. consumer spending in November outstripped expectations, but gains were kept in check as many still expect the economy to slow in 2007.
The greenback rose after the government reported U.S. retail sales in November had their largest rise in four months, with a 1.0% increase beating forecasts for a rise of 0.2%.
The dollar came under broad-based pressure the day before when the Federal Reserve left interest rates at 5.25%.
Many interpreted the Fed's post-meeting statement as reflecting greater concern about the state of the housing market, suggesting that a Fed rate rise is less likely.
However, the upbeat report on consumer spending was enough to protect the dollar, at least for now.
"Looking through all the noise, it's notable that the dollar hasn't been able to strengthen more," said Daniel Katzive, foreign exchange strategist at UBS Securities in Stamford, Connecticut.
"This suggests people still remain focused on the dollar's structural risks," he said, referring to the U.S. trade and fiscal deficits.
The euro is having hit a session low of $1.3196, but this was well off the low at $1.3129 established after Friday's U.S. employment data showed robust job creation in November.
On Tuesday, the government reported that the U.S. trade deficit shrank in October below $60 billion, to its smallest since August 2005.
But the U.S. deficit with China hit a record high, which is bound to crop up when Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson meet Chinese officials for trade talks later this week.
Against the yen, the dollar is near a session high at 117.49 yen.
The Pound Sterling is well off a session high at $1.9729, which was established after robust UK employment data.
Financial markets continue to reflect a one in five chance that the Fed will cut rates by a quarter of a percentage point in the first quarter of next year, and this will almost certainly mean the dollar's bounce will be short-lived.
"Does this change the overall medium term outlook for the U.S. economy? Probably not," said Tim Mazanec, senior currency strategist at Investors Bank and Trust in Boston. "As we've seen with last few decent numbers, any time the dollar rallies it's brief and only provides opportunity to buy euros."