The dollar slipped against most major currencies on Tuesday as U.S. bond yields continued to retreat from five-year highs hit last week, eroding their appeal to foreign investors.
At the same time, the euro retreated from a record peak against the yen and treaded water against the dollar after a surprise decline in German business confidence in June.

In recent weeks, the dollar has closely tracked Treasury yields, hitching a ride higher as strong U.S. economic data boosted the benchmark 10-year yield to 5.33 percent and sent the euro to a near-three-month trough against the greenback.
But with little major U.S. economic data on tap this week to guide traders, an ongoing bond market retracement has curbed dollar gains and weakened the case for the Federal Reserve to boost interest rates in 2007.
"We have a light calendar this week and there's no real catalyst providing a fresh reason to buy dollars," said Bank of New York strategist Michael Woolfolk. That leaves "significant gyrations in bond prices" to lead some of the price action, he said.
Higher U.S. Treasury yields imply higher interest rates and tend to attract return-hungry investors into U.S. assets.
But in recent days, the spread of the implied U.S. interest rate in December 2008 over the euro zone's has narrowed to around 60 basis points from 70 basis points last week, according to the futures market.
On Tuesday, the dollar fell 0.2 percent to 123.40 yen and also fell 0.3 against sterling to $1.9885 per pound.
The euro was among the few currencies unable to gain on the greenback, trading flat at $1.3415 after Germany's ZEW business sentiment index unexpectedly fell in June.
The euro also fell 0.2 percent to 165.52 yen after earlier hitting a record peak above 166 yen.

Traders said price action was mostly centered on cross rates in which investors sold the euro against sterling and yen.
Markets are still expecting at least two more interest rate hikes from the European Central Bank this year, while the Fed is seen leaving rates steady at 5.25 percent for 2007.
"The euro wants to trade higher but can't because of selling pressure in euro/yen," said Brian Dolan, head of research at Forex.com in Bedminster, New Jersey.
Despite the yen's mild rise on Tuesday, market sentiment remained positioned against the currency as investors continued to borrow it at low Japanese interest rates in order to buy higher-yielding currencies.
Hiroshi Watanabe, Japan's vice finance minister, said Tuesday he was watching speculative yen carry trades carefully but said they do not as yet pose a risk to Japan's economy.
BOND BREAKDOWN AHEAD?
Bank of New York's Woolfolk, however, said it would be a mistake to expect yields and the dollar to march in lock-step indefinitely and said there are other reasons for dollar weakness as well, including a push higher in oil prices.
Indeed, commodity currencies such as the Canadian and New Zealand dollars have been among the biggest gainers on the day.

"We should not confuse correlation with causation," he said.