The dollar edged down from a 14-year high against a basket of currencies on Wednesday, with investors cautious about increasing bets on the greenback before getting fresh clues on the U.S. economy and timing of interest rate rises.
The greenback surged to its highest levels since late 2002 on Tuesday after U.S. manufacturing data beat expectations, once again threatening to reach parity with the euro, which fell to a 14-year low of $1.0340.
Analysts said low volume in markets this week may have exaggerated Tuesday's moves, pushing the dollar higher in the absence of some larger market participants.
The dollar has climbed almost 6 percent since Donald Trump was elected as U.S. president eight weeks ago, on expectations that his new administration will introduce reflationary measures backed by large fiscal spending, prompting the Federal Reserve to follow through with a series of interest rate hikes.
But with investors already pricing in between two and three hikes this year, analysts reckon they will want to see more evidence that growth and inflation are on the rise and that the pace of rate hikes will accelerate before putting on more bets on the dollar.
HSBC, nevertheless, changed their forecasts late on Tuesday to show the euro falling to $1.01 in the first quarter, down from $1.08 previously, though they reckon the dollar will then slip back for the rest of the year, never reaching parity.
The euro climbed 0.52 percent to $1.0458, boosted by data showing euro zone prices rose more quickly than expected in December and surveys suggesting business growth reached its highest in more than five years.
The dollar fell 0.05 percent against the yen to 117.68 yen.
"Yesterday...people came back to work, saw that euro/dollar had moved higher and used that as an opportunity to put back on their dollar longs; today the story is a bit more complicated," said Rabobank currency strategist Jane Foley.
"Yes we've had some good U.S. data, but we've also had stronger German data and the PMIs on Monday were also pretty strong in Europe... Are investors really prepared to push above those 14-year highs to make that extra move down to parity? I suspect the market may need a bit more incentive to do that."
The dollar index - which measures the greenback against a basket of six major rivals - edged down 0.43 percent to 102.77 on Wednesday, having hit a peak on 103.82 on Tuesday.
The dollar was also seen facing potential turbulence ahead of Friday's highly anticipated U.S. non-farm payrolls report.