The dollar fell on Tuesday as a contraction in U.S. manufacturing employment and upbeat European economic data knocked the greenback from 8-1/2-month highs against a basket of major currencies.
The dollar index fell 0.39 percent to 99.78, the most it has fallen in nearly two weeks, after nearing a 12-year high on Monday.
Data showing unemployment in Germany at a record low and euro zone manufacturing growth at a 19-month high boosted the euro, which broke solidly through the $1.06 mark.
The euro added to its early gains against the dollar after U.S. manufacturing data showed the sector slowing for a fifth straight month and falling to its weakest levels since June 2009.
The euro was last up 0.63 percent to $1.0635, its biggest one-day rise since Nov. 20.
"There's not a lot of uncertainty, but there's enough with what both the ECB and the Fed are going to do that you're not going to get a further leg down in the euro until at least one of those banks does what they say they're going to do," said Joe Trevisani, chief market strategist at WorldWide Markets in Woodcliff Lake, New Jersey.
The single currency fell 4 percent against the dollar in November on expectations the ECB would add further stimulus to the euro zone at this week's meeting. In contrast, the U.S. Federal Reserve is expected to raise interest rates later in the month, making it a more attractive currency for investors.
The dollar also lost pace to antipodean currencies on Tuesday, as the rose 1.31 percent to $0.7330.
The Aussie, already up modestly on news overnight that the Reserve Bank of Australia (RBA) chose to keep interest rates unchanged, rose sharply after the release of the U.S. manufacturing data.
RBA Governor Glenn Stevens said that while the local economy is suffering from lower-priced commodities, falling terms of trade and low capital investment, the economy is slowly transitioning to non-mining-led growth.
"The fact that they didn't sound too bothered by the Aussie dollar holding up broadly against falling commodities (prices) was probably read as a sign that they're not yet ready to start (talking down) the currency and that was read as bullish," said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in New York.
The New Zealand dollar also added to gains, rising 1.15 percent against the dollar to a one-month high of $0.6684.