The U.S. dollar weakened against its major rivals in the European session on Thursday on hopes that its recent rally was overdone.
U.S. treasury yields fell, with the benchmark 10-year yield touching 2.84 percent.
Investors fear that the central banks' attempts to fight inflation by steep monetary tightening is likely to slow global growth.
Overnight data showing a fall in U.S. housing starts and building permits for April added to worries about a slowdown in the economy.
Earnings reports from retailers showed that high inflation were hurting corporate profits, with Target reporting bleak first-quarter results due to higher fuel and freight costs.
On the economic front, U.S. weekly jobless claims for the week ended May 14 and existing home sales for April are due out later today.
The greenback dropped to a 1-week low of 127.73 against the yen and a 2-week low of 0.9749 against the franc, down from its previous highs of 128.94 and 0.9885, respectively. The greenback is seen finding support around 121.00 against the yen and 0.95 against the franc.
The greenback reached as low as 1.2407 against the pound, following a high of 1.2334 hit at 5 pm ET. Against the euro, it edged down to 1.0509. The next possible support for the greenback is seen around 1.27 against the pound and 1.08 against the euro.
The greenback was trading lower against the loonie and the kiwi and were quoted at 1.2820 and 0.6353, respectively. On the downside, 1.26 and 0.65 are possibly seen as the next support levels for the greenback against the loonie and the kiwi, respectively.
In contrast, the greenback held steady against the aussie, after recovering to 0.6958 from the Asian session's low of 0.7024. The pair traded at 0.6953 at yesterday's close.
Looking ahead, the European Central Bank publishes the account of the monetary policy meeting of the Governing Council held on April 13-14 at 7:30 am ET.
U.S. weekly jobless claims for the week ended May 14 and existing home sales for April, as well as Canada new housing price index, industrial product and raw materials price indexes, all for the same month, are due out in the New York session.