The dollar lost ground Thursday against the yen and the euro ahead of the release of new data on the U.S. trade deficit.
The 12-nation European currency bought $1.2814 in morning European trading, up from $1.2794 in New York late Wednesday. The dollar also retreated slightly against the Japanese yen, falling to 105.61 yen from 105.76.
The British pound rose to $1.8613 from $1.8587.
The dollar slipped Wednesday after days of gains fueled by market optimism that the nation is getting serious about tackling its trade and budget deficits. The United States was due to report December trade data later Thursday, and economists were looking for a narrowing of the trade deficit.
"The market's looking for concrete evidence to persuade them that the various reasons they had for selling dollars last year, such as concerns over the U.S. deficits and moves by Asian central banks to sell dollars, are no longer relevant," said Masamichi Koike, head of spot foreign exchange trading at Sumitomo Mitsui Banking Corp. in Tokyo.
While the dollar remains weak, the currency has pulled out of a nosedive that took the euro from $1.20 in September to an all-time high of $1.3667 at the end of December -- a drop caused by nagging concerns over the U.S. trade and budget deficits.
The euro dipped under $1.28 on Monday for the first time since Nov. 5 after President Bush sent Congress a $2.57 trillion budget for 2006 that he described as "lean."
The dollar also has been boosted by comments last Friday from Federal Reserve Chairman Alan Greenspan suggesting that the United States was coming to grips with its huge trade deficit. Traders interpreted Greenspan's comments as a sign that the dollar doesn't necessarily have to weaken to shrink the U.S. current account deficit.
Still, economists are skeptical as to whether the dollar can hang on to its gains in the long term.