The dollar fell against European currencies on Tuesday as surging oil prices put a question mark over the US economic recovery and overshadowed upbeat US manufacturing and construction data.
Manufacturing activity expanded more than expected in May, marking the twelfth straight month of increases, with factory hiring at its highest level in 31 years, according to the Institute for Supply Management.
Construction spending rose more than expected to a third consecutive record high as higher mortgage interest rates spurred a rush to build.
"There is widespread bearishness in the market and the key issue is oil prices. The positive impact for the dollar of today's better-than-expected US economic data was offset by soaring oil prices off the back of this weekend's news," said Michael Woolfolk, senior currency strategist at Bank of New York.
Analysts said these data will provide one bookend to Friday's more important US payrolls report, which is the last big piece of economic news before the Federal Reserve meets on June 29 and 30. The market expects the Fed to begin raising benchmark interest rates from their 46-year low of 1 percent.
"I would say (the ISM index) is a good number for the dollar but not excellent," said Peter Frank, senior foreign exchange strategist at ABN Amro in Chicago.
It was the strong payrolls data for March and April that sparked a dollar rally and pushed speculators to bet on further dollar gains.
However, the surge in oil prices over the last month attacks on foreign workers in Saudi Arabia's oil production region and mixed US economic data have turned a bright green light for dollar gains into a cautious flashing yellow.
The euro regained ground it lost following the economic data and moved to a session high $1.2265 before easing back to trade at $1.2243, up 0.49 percent, according to Reuters data. The euro is less than a cent below Friday's seven-week high of $1.2296.
The dollar extended its gains against the yen, trading to a session high 110.71 yen, before slipping to 110.36 yen, a gain of 0.79 percent. The euro surged to 135.28 yen up 1.40 percent on the day.
Good economic data from Japan showing strengthening internal and external demand was balanced against higher oil prices, given Japan is a big importer of crude to drive its economy.
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