The dollar dropped to an eight-week low on Tuesday after a weak U.S. consumer confidence report, with investors cautious about a Federal Reserve meeting that could reinforce the view that interest rates in the world's largest economy might rise more gradually than initially thought.
The Fed is expected to keep interest rates on hold, but the main focus will be on the statement at the end of its policy meeting on Wednesday.
The dollar lost 4 percent in the past six weeks as expectations of a rate rise in June have faded after a run of soft data triggered worries that the U.S. economy is stalling. But many still expect the Fed to lift rates in September.
Tuesday's private-sector report showing an unexpected slump in U.S. consumer confidence in April further undermined the dollar.
The Conference Board said its index of consumer attitudes fell to 95.2 from an upwardly revised 101.4 in March. Economists were looking for a reading of 102.5.
Forex.com said this was the largest miss since June 2010.
"While this figure (consumer confidence) was a shock for dollar bulls, it merely extends the persistent trend of disappointing U.S. data," said Matt Weller, senior technical analyst at Forex.com in Grand Rapids, Michigan.
"Today's consumer confidence report can be seen as the proverbial 'straw that broke the bull's back."
In late trading, the dollar index was down 0.73 percent at 96.06. It fell as low as 96.011, the weakest level since March 5.
Benefiting from the dollar's weakness, the euro gained 0.95 percent to $1.0980. It earlier rose to $1.0990, its highest since April 6.
The euro also benefited from hopes that cash-strapped Greece could secure extra funding. That followed news that Prime Minister Alexis Tsipras had reshuffled his team handling talks with European and International Monetary Fund lenders, effectively sidelining Finance Minister Yanis Varoufakis.
Tsipras said he was confident of reaching a deal before a meeting of eurozone finance ministers on May 11, the day before Greece must pay 700 million euros to the IMF.
The Australian dollar was the biggest gainer, rising about 2.0 percent to US$0.8026 after earlier hitting a three-month high. A rally in iron ore prices raised expectations that the Reserve Bank of Australia will not cut rates next week.