The dollar rose on Tuesday on unexpectedly better US April housing data, compounding an earlier euro sell-off that was spurred by hints the European Central Bank could take more action to lower euro zone bond yields and boost inflation.
US housing starts reached their highest level in 7-1/2 years in April, welcome news after dismal first-quarter data.
"It is good for the growth outlook. The question is whether or not people will buy the houses they are building and whether or not consumption will hold up in the US That is going to be absolutely necessary for the Fed to see," said Richard Cochinos, head of Americas G10 FX strategy at Citi in New York.
The euro hit a two-week low of $1.11220, down 1.61 percent on the day after the US data, according to the EBS trading platform.
Sterling hit a low of $1.5445 before rebounding to $1.5501, a loss of 0.93 percent. Data showed British inflation fell into negative territory last month for the first time since 1960.