The dollar edged up against a basket of major currencies, snapping a nine-day decline, but the outlook remained negative in the near term.
The view that the Federal Reserve may have to cut U.S. interest rates at least once this year to stimulate a slowing economy, thereby removing some of the dollar's lifeline of yield support, has already sent the greenback to 26-year lows against sterling and two-year lows against the euro.
An upgrade by Standard and Poor's of Japan's sovereign debt rating briefly boosted the yen, but traders said buying in the currency had lost momentum in the New York session.
"The yen aside, the dollar is just going through a small corrective phase," said Matt Kassel, director of foreign exchange at ING Capital Markets in New York.
"There's nothing going on that's changed the scope of dollar-bearish sentiment. The market has had several weeks of dollar selling and I think this is just a little bit of profit-taking on the lack of upside momentum in other currencies," he added.
The euro slipped about 0.1% against the dollar, with investors taking profits after the single currency last week climbed within half a cent of the record high of $1.3670.
The euro fell 0.2% versus the yen, moving further away from the lifetime peak of 162.42 touched early last week.
The dollar index inched up 0.1% to 81.735, within sight of last week's two-year low of 81.507.
As an example of how tenuous Monday's recovery in the dollar was, dealers quickly pushed the greenback lower after the chief investment officer for the world's largest bond fund manager said the weakening dollar could have major consequences for investors.
"The dollar is close to breaking through support levels and if it does that then it could have significant implications for all markets, and certainly for the Treasury market in terms of inflation," Bill Gross of Pacific Investment Management told Bloomberg television.
S&P raised its long-term sovereign rating on Japan to AA from AA-minus, giving support to the yen before a Bank of Japan monetary policy meeting and the central bank's twice-yearly
economic outlook report on Friday.
The low-yielding yen has been heavily borrowed to fund investment in higher-yielding assets.
The yen, however, trimmed gains after vice finance minister Hideto Fujii said Japan was not considering setting up an investment body for managing foreign exchange reserves -- as had been reported in the Financial Times -- at this point.
The pound traded at , further edging away from its 26-year peak at $2.0134 hit last week.
Overall, markets are looking to this week's series of U.S. economic reports on gross domestic product, consumer confidence and housing for clues on where the economy and interest rates are headed. The focus seems to be more on the housing sector, analysts said.
Meanwhile, Japanese data due on Friday, including consumer prices, industrial output and jobs, was seen unlikely to change the market's view that the Bank of Japan would keep its overnight call rate at 0.5% for now.