(Updates at 0838 GMT)
The dollar stayed near a two-week high on Wednesday after jumping the previous day, its rally underpinned by elevated U.S. Treasury yields and a cautious turn that weighed on Wall Street.
Trading was relatively subdued, with Japanese markets shut for a holiday and investors waiting for important U.S. economic releases later in the day, including minutes from the Federal Reserve's December meeting.
The euro EUR=EBS was last up 0.12% against the dollar at $1.0954. It fell 0.95% on Tuesday, its biggest daily drop since July.
That helped push the dollar index =USD , which tracks the currency against six major peers, slightly lower to 102.18, although it held on to almost all of the previous day's gains of 0.86%.
A surge in risk appetite at the end of last year, sparked by a drop in inflation and a dovish tilt in the Federal Reserve's December policy meeting, fuelled bets for U.S. rate cuts in 2024, toppling the greenback and sparking a rally in Treasuries and stocks. The dollar index hit a five-month low of 100.61 last week.
That buoyant mood failed to carry over into the New Year, with the S&P 500 and Nasdaq Composite closing lower on their first trading session of 2024, dragged down by big tech names
. Treasury yields jumped as prices fell, boosting the attractiveness of U.S. debt and propelling the dollar higher.
"I think that what happened in the latter half of December was just not justified," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
"The markets got carried away with this view of imminent Fed cuts in the first quarter, that took the dollar off. So I do think that this reversal can carry on for a bit longer."
The greenback was last up 0.43% against Japan's yen JPY=EBS at 142.57 to the dollar, adding to the previous day's 0.82% gain.
FED MINUTES
Investors will scrutinise the minutes from the Fed's December meeting, due at 1900 GMT (2 p.m. ET), for any hints about how many rate cuts the central bank will actually carry out this year.
Data on U.S. job openings for November and a survey-based gauge of the manufacturing sector could also move markets.
"As more people come back it will be more about the data," said RBC's Tan.
The New Zealand dollar NZD=D3 , often used as a proxy for risk appetite, was last 0.11% higher at $0.6259, having slid to a two-week low of $0.6246 earlier on Wednesday.
Sterling GBP=D3 gained 0.21% to $1.2646, having slid 0.87% in the previous session, its sharpest daily fall in nearly three months.
Analysts said the risk-off mood was also in part driven by concerns over escalating geopolitical tensions, after Israel killed Hamas deputy leader Saleh al-Arouri in a drone strike in Lebanon's capital Beirut on Tuesday.
"I suspect that markets (are) starting the year with finding it hard to completely ignore geopolitics," said Ray Attrill, head of FX strategy at National Australia Bank.
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