The U.S. dollar hit a more than three-month low against a basket of major currencies on Wednesday after weaker-than-expected U.S. retail sales data for April supported expectations that the Federal Reserve would wait longer before hiking rates.
U.S. retail sales were unchanged in April as households cut back on purchases of automobiles and other big-ticket items. The data suggested the economy was struggling to make a strong rebound after barely growing in the first quarter.
In addition to the retail sales report, other data showed the 10th straight month of declining import prices in April.
"The market is basically convinced that the Fed is not going to do anything until the consumer shows some strength," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
Traders are watching U.S. economic data closely for signs of when the Fed will hike interest rates from rock-bottom levels, which is expected to boost the dollar by driving investment flows into the United States.
Analysts said much of the euro's gains were a result of traders repurchasing the euro, or "covering" short bets against the currency.
The dollar index, which measures the greenback against a basket of six major currencies, hit a more than three-month low of 93.461. The index was on track to post its biggest one-day decline in a week.
The dollar also hit a nearly two-week low against the yen of 119.030 yen. While the euro rose above 1 percent against the dollar, its session high of $1.13830 was shy of last Thursday's more than two-month peak of $1.1392. The euro held within the past week's ranges in part because of greater stability in bond yields, analysts said.
German 10-year Bund yields were last at 0.72 percent after hitting their highest level of the year at 0.80 percent last week, while 10-year U.S. Treasury yields were last at 2.29 percent after hitting six-month highs of 2.37 percent on Tuesday.
"It takes away some of the momentum" in the euro, said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York, in reference to yields stabilizing.
The dollar index was last down 0.94 percent at 93.637.