The dollar pared losses Tuesday against major counterparts after the Commerce Department said new construction of houses fell to a record low in April, a bigger drop than economists expected.
The dollar index , which measures the greenback against a basket of rivals, slid to 82.296 from 82.660 in late North American trading Monday.
Versus the Japanese currency, the dollar fell to 96.20 yen from 96.37 yen.
The euro advanced to $1.3597 from $1.3535 late Monday. The shared currency also gained support from a much better-than-anticipated reading on German economic sentiment.
The ZEW indicator jumped to 31.1 in May from 13.0 in April, above economist estimates of a 20.0 reading. The optimism of the financial experts is supported by modest signs of a recovery of the real economy over the last weeks, the ZEW Institute said.
The U.S. report also said building permits fell to a record low, below forecasts, indicating construction companies are still wary of adding to the country's bloated housing inventory. See more on housing starts.
The U.S. currency had recently taken direction from equity markets, as investor willing ness to take more risk, in assets like stocks, has detracted from the dollar's safe-haven appeal.
Indeed, the greenback was under pressure before the data as equities' benefited from better-than-expected earnings from Home Depot and reports that some major U.S. banks have applied to repay loans under the Troubled Asset Relief Program.
Higher-yielding currencies were the beneficiaries, with the Australian dollar touching its highest since October versus the U.S. currency, at 77.66 U.S. cents earlier.
The British pound also reached its highest in six months versus the U.S. dollar, surpassing $1.55 earlier.
