The greenback's weakness on Monday though benefited the euro, which rose from an 11-month low hit last Friday. Recent political developments have eased the uncertainty surrounding next year's German and French elections.
Shaun Osborne, chief currency strategist at Scotiabank in Toronto, said the dollar's slide was just a correction or, at the very least, a consolidation. He remained upbeat on the dollar's medium-term outlook due to rising rates amid expectations of stronger U.S. growth.
In late trading, the dollar index was down 0.31 percent at 100.90. Over the last 10 days, it has posted a nearly 5 percent gain, with investors betting U.S. President-elect Donald Trump's increased fiscal spending would stoke inflation and propel interest rates higher.
That said, Scott Smith, director of hedging solutions at Cambridge Global Payments in Toronto noted that Fed Chair Janet Yellen in her testimony before Congress last week struck a cautious tone on the U.S. economy, with the Fed seemingly in no rush to factor in the likelihood of increased fiscal stimulus into their economic models.
This poses a risk to the market's bullish bias on the dollar, he added.