The dollar traded lower on Tuesday after a report surfaced that a U.S. vessel was seized by Iranian forces.
The dollar index, which measures the greenback against a basket of major currencies, fell to 96.15, or 0.63 percent from 96.36.
The euro extended its gains against the greenback to $1.0977, up 0.9 percent, from $1.0967.
Investors also eyed a U.S. Federal Reserve meeting starting later in the day that could offer clues as to whether bets on an interest rate hike in the coming months are justified.
Worries that the U.S. economy is stalling, following a run of weaker-than-expected data, have seen the dollar lose around 4 percent in the past six weeks as expectations of an interest rate rise in June have faded. But many still expect the Fed to lift rates in September.
U.S. consumer confidence for April came in at 95.2, below the expected 102.5, while the S&P/Case-Shiller’s 20-City Composite gained 5 percent year-over-year in February, compared with a 4.5 percent increase in January.