The U.S. dollar retraced most of its early weakness on Monday before the Federal Reserve is expected to hike rates on Wednesday, though concerns about tepid inflation were seen weighing on the greenback.
When the U.S. central bank concludes its two-day December policy meeting, investors will be watching for concern about low inflation from Fed officials and any indications that this may make further rate hikes next year less likely.
Tepid wage growth in Fridays jobs report for November added to concerns that inflation will remain benign and complicate the Feds ability to execute further rate hikes.
"Markets after last weeks numbers are probably going into the Fed a little bit more cautious, especially if [Yellen] continues to play out the disappointments we've seen around inflation and how that may impact the outlook next year," said Mark McCormick, North American head of FX strategy at TD Securities in Toronto.
The dollar index against a basket of six major currencies was last down 0.03 percent at 93.87, after earlier falling as low as 93.666.
Consumer Price Index (CPI) data on Wednesday will be a key data focus for further clues on price pressures.
The greenback pared losses as U.S. Treasury yields rose back from morning lows, which were reached on safety buying after an explosion rocked one of New York's busiest commuter hubs.
"That played a pretty significant role in the rebound in the dollar," said Kathy Lien, a managing director at BK Asset Management in New York.
Safe-haven currencies the Japanese yen and Swiss franc had also gained after the explosion at New York's Port Authority. New York Mayor Bill DeBlasio said it was "an attempted terrorist attack."
The kiwi jumped over one percent after the New Zealand government named pension fund chief Adrian Orr as the nation's new central bank governor, as markets bet a radical shake-up of monetary policy will be avoided.