The dollar fell against the euro and yen on Wednesday, as traders booked profits on the greenback's 3% rise this month.
The weaker dollar comes a day after data Tuesday showed first-quarter U.S. home prices jumped at their fastest pace in almost seven years, which prompted a dollar rally against major currencies. U.S. 10-year Treasury yields also surged to a 13-month high of 2.23% after the housing data.
The U.S. currency has strengthened broadly over the past few weeks. Improving data has raised expectations that the U.S. economy may be healthy enough for the Federal Reserve to start pulling back on its stimulus bond-buying program, a move that would help the dollar's value.
Although the dollar is suffering from temporary profit-taking, analysts say the U.S. economy is still recovering at a faster pace than economies in Europe, Japan and Switzerland. That will maintain the dollar's appeal for investors.
"The story remains in place that the dollar will continue to gain ground," said Josh O'Byrne, currency strategist at Citigroup in London. "Other major central banks are pursuing easier monetary policy, while the Fed is potentially pulling it back."
The dollar recently fell to 101.31 yen, down 1% from 102.37 yen late Tuesday. The euro was at $1.2938, up from $1.2856.
The greenback did gain against emerging-market currencies, including the Brazilian real, Mexican peso, South Korean won and South African rand.
The Australian dollar also recovered some of its losses but remains under pressure. The Aussie dropped earlier to a near 20-month low after the International Monetary Fund lowered its 2013 outlook for China's economic growth to 7.75% from 8%. China is the top buyer of Australia's commodities exports.
Concerns about slowing Chinese growth and falling commodities prices have already pushed the Aussie dollar down 7% this month. After falling as low as $0.9528, it last traded at $0.9619, up from $0.9616 late Tuesday.
Meanwhile, the Canadian dollar is up against the greenback ahead of an interest-rate decision from the Bank of Canada, the last announcement from departing BOC Gov. Mark Carney. The market widely expects Canada's central bank to maintain its overnight target rate of 1%.
The Swedish krona also strengthened against the dollar and the euro after data showed Sweden's economy grew 0.6% in the first quarter, beating expectations for a 0.3% rise.
The Wall Street Journal Dollar Index, which measures the dollar against a basket of currencies, fell to 75.364 from 75.836 late Tuesday.
