The dollar leveled off Tuesday morning in New York, edging away from a 2-month peak versus the euro ahead of the latest interest rate announcement from the Federal Reserve.
The beleaguered euro got a lift from a better-than-expected reading on German economic sentiment and falling yields on Spanish debt.
However, the major ratings agencies continued to sound the alarm bells on Europe. Monday placed eight Spanish banks and two holding companies on review for possible downgrades this morning.
The dollar eased slightly to $1.32 versus the euro, after touching $1.3160, its highest since early October.
The Fed is widely expected to announce no further stimulus measures, but policy makers may signal they are strongly considering another round of quantitative easing.
A move to $1.3140 would take the dollar to its highest since January.
German economic sentiment improved unexpectedly in December, marking an end to a nine-month downward trend, a closely watched survey showed Tuesday.
The economic sentiment index rose 1.4 points to -53.8 in December, the Mannheim based Centre for European Economic Research (ZEW) said.
The dollar was stuck near $1.56 versus the sterling, little changed from the previous session.
Driven by a slower increase in food prices, U.K. inflation eased further in November amid weak economic activity, data from the Office for National Statistics showed Tuesday.
Annual inflation came in at 4.8 percent, as expected, the lowest since August.
The buck was steady near Y77.80 versus the yen.
On the U.S. economic calender, the Commerce Department is scheduled to release its retail sales report at 8:30 am ET. For November, economists estimate a 0.5 percent increase in retail sales, and excluding autos, sales may have risen 0.4 percent.
The Commerce Department is also scheduled to release its business inventories report for October at 10 am ET. The report is expected to show a 0.6 percent increase in business inventories for the month.