The dollar on Tuesday fell against a basket of other currencies as traders scaled back their safe-haven greenback holdings on optimism that a fresh round of talks between China and the United States would help resolve their trade conflict.
The dollar index hit a near two-month peak on Friday after last week's set of negotiations in Beijing failed to result in a deal, although officials from both sides said the talks had produced progress on contentious issues.
"We are hoping to hear more positive news on trade," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "The dollar should come under pressure as it loses some safe-haven appeal."
The ICE index, which tracks the dollar against six other major currencies, was down 0.41 percent at 96.50.
On Friday, it hit 97.368, which was the highest since Dec. 17. U.S. financial markets were closed on Monday for the Presidents Day holiday.
Among other major currencies, the Swedish crown tumbled after weak inflation data spurred sales of the currency and a paring of bets that interest rates would rise this year.
Last week, the crown rose after Sweden's central bank broke with growing caution among major monetary-policy makers, saying it would stick to its plan to raise rates in the second half of 2019.
The currency plunged more than 1 percent to a two-year low against the dollar at 9.4180, after a report showed inflation slowed in January.
Against the euro, it was headed for its biggest daily decline in more than 15 months. It touched 10.621, its weakest since September.
The euro appreciated against the dollar on trade optimism. It reversed earlier losses after data showed Italian industrial orders dropped 5.3 percent in December from a year earlier.
Euro zone bond yields, notably those of German bunds, fell amid the cloudy European economic outlook, weighing on the euro. When European Central Bank policymakers meet on March 7, they are expected to lower growth and inflation projections.
The euro was up 0.32 percent at $1.1344, holding above a three-month low of $1.1234 set last week.
The single currency, however, fell against the British pound as data showed domestic workers' salaries held at its fastest pace in a decade in late 2018.
The euro was 0.62 percent lower at 86.99 pence, while the pound was up 1.15 percent at $1.307. The sterling's gains were limited ahead of British Prime Minister's Theresa May's meeting with the EU to find a way to get their Brexit deal through the UK parliament.
The Chinese yuan reached a two-week high against the dollar on Tuesday following a Bloomberg TV report that said the United States is pressing to secure a pledge from China that it will not devalue its yuan as a part of a trade deal.
At 3:00 p.m. EST, the yuan was up 0.14 percent at 6.756 per dollar in offshore trading, EBS data showed. Earlier, the Chinese currency hit 6.7497, which was its strongest against the greenback since Feb. 4.