NEW YORK: The dollar fell from three-week highs against the yen and one-week peaks versus the euro as a mixed batch of U.S. economic data added to uncertainty about the pace of future interest rate increases.
A better-than-expected report on the U.S. services sector for April was offset by a wider-than-anticipated trade deficit. The dollar initially rallied on the service sector survey, but came crashing back down.
In addition, another report on Tuesday showed the pace of expansion in the U.S. services sector eased from a seven-month high in April on a dip in new business growth.
The dollar had started to regain ground in the last few days on signs the U.S. economy was starting to recover after a soft patch earlier in the year.
"I think people are realizing that the first quarter is a bigger hole to climb out of and into the second quarter and therefore there is the view that the Federal Reserve could delay raising interest rates," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
In late morning trading, the dollar index fell 0.4 percent to 95.092.
The euro recovered from one-week lows to trade 0.4 percent higher at $1.1187, disregarding a report that said the International Monetary Fund may cut a funding lifeline to Greece unless its European partners accept more debt writedowns.
German Finance Minister Wolfgang Schaeuble denied the IMF was insisting on further debt relief, but said the fund had warned that Greece's financial situation was worsening.
Against the yen, the dollar slipped 0.1 percent to 120.08 yen, after earlier touching three-week highs.
Data showed on Tuesday that the pace of growth in the U.S. services sector rose to a five-month high in April, lifted by a surge in business activity.
The Institute for Supply Management said its services index rose to 57.8 last month from 56.5 in March. Analysts had expected a reading of 56.2.
The report briefly lifted the dollar.
Earlier in the session, data showed that the trade deficit surged to its highest in nearly 6-1/2 years in March as imports rebounded strongly after being held down by a labor dispute at key West Coast ports.
The trade gap jumped 43.1 percent to $51.4 billion, the largest since October 2008. Economists polled by Reuters had forecast the trade deficit rising to $41.2 billion.
The dollar had weakened on the trade deficit data
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