The dollar slipped after weak U.S. housing and consumer confidence data raised expectations the Federal Reserve may have to cut interest rates sometime this year.
Traders were expecting weak numbers and the market was already bearish towards the dollar. Still, market participants believed the dollar could suffer further losses.
"Simply put, these numbers are bad. And they just reinforce the view that the U.S. economy is slowing, while growth in other parts of the globe is picking up," said Greg Salvaggio, vice president for currencies at Tempus Consulting in Washington.
U.S. consumer confidence declined more than expected in April on rising gasoline prices while inflation expectations rose to their highest since August, a survey showed on Tuesday.
U.S. existing home sales fell 8.4% in March, following a rise of 3.7% the previous month.
"The Fed will need to cut interest rates some time this year to jump-start the economy. I wouldn't be surprised to see the dollar testing its all-time lows against the euro once again this week," he added.
The dollar fell after the data, pushing the euro as high as $1.3635, from about $1.3590 just before the data, and edging closer to its all-time high against the dollar at around $1.3670.
Against the yen, the dollar pared gains to trade flat, from 118.70 just before.
The implied chances for a Fed rate cut by mid-year remain low, at 12% against 10% on Monday. However, prospects for cuts in the third and fourth quarter advanced more strongly.
The Australian dollar was the biggest mover of the day so far, falling to the lowest in nearly two weeks to US$0.8231, following benign inflation numbers. It traded , coming off last week's decade highs above 100 yen.
Australian short-term interest rates plunged following the news, as prospects for a rate tightening at next week's monetary policy meeting by the Reserve Bank of Australia have decreased dramatically. Benchmark Australian interest rates are currently at 6.25%.
The Canadian dollar, meanwhile, slipped against the U.S. dollar after the Bank of Canada left interest rates unchanged and said the risks to the economy were roughly balanced.
Regarding the United States, investors expect the dollar's yield advantage to decline as problems in the housing sector could weigh on consumer sentiment, hobble growth and prompt a rate cut.
The dollar has weakened considerably in the past year, falling to 26-year lows against the British pound and 2-year lows against the euro, mainly because of slowing U.S. economic
growth at a time when other major economies are still showing signs of robustness.
Investors are expecting the Federal Reserve to cut interest rates at least once this year, compared with forecasts for higher rates in the euro zone and Britain among others.
Japanese data due on Friday, including key consumer prices, is not likely to change the market's view that the BOJ will be in no rush to raise interest rates.