- Anticipated talks between Chinese and U.S. officials in Washington will take place in the next few days.
- The dollar index rose 0.12 percent to 96.22.
- Emerging markets were mostly lower although losses were small amid concerns over Turkey's economy.
The dollar reversed gains on Monday as concerns eased about possible contagion effects of Turkey's currency crisis, though growing optimism over upcoming U.S.-China trade talks provided a floor for the greenback.
The U.S. currency weakened modestly against the euro during the North American session as investors unwound risk-off trades made earlier in the day, which had boosted the dollar due to its appeal as a perceived safe-haven investment.
"In the European session, emerging market tension had the dollar bid, and since then we've had a positive open. ... It's a risk-on session, and the dollar has come off accordingly," said Greg Anderson, global head of Foreign Exchange strategy at BMO Capital Markets in New York.
Against the U.S. currency, the euro strengthened to $1.1458, half a basis point higher than its session trough.
Concerns that the currency crisis in Turkey could hurt euro zone banks and uncertainty about the Italian government's planned budget had weighed on the euro earlier in the morning, analysts said.
"The euro is starting to reflect greater short-term domestic political angst," ING strategist Viraj Patel said.
"Investors will be cautious over Turkey's medium-term economic plan, while the next month or so will also see a narrower focus on the risks around (the) Italian budget," he said.
The dollar also had gained early in the North American session ahead of trade talks between the United States and China, due this week, which investors hope will ease tensions between the world's two biggest economies.
"The market is giving the resumption of U.S.-China trade talks the benefit of the doubt that they could be a stepping stone to a meaningful breakthrough," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Dealers cited speculation that the talks could set the stage for a summit between U.S. President Donald Trump and Chinese President Xi Jinping in November.
The dollar index was down 0.16 percent at 95.95.
Traders are also preparing for the release of Federal Reserve policy meeting minutes on Wednesday and an annual Jackson Hole symposium for insights into the likely direction of U.S. monetary policy.
On Monday, the lira fell 1.5 percent, pushed lower after S&P Global and Moody's downgraded the country's sovereign credit rating further into junk territory.