The euro hovered below $1.13 on Wednesday as Italy re-submitted its draft budget for next year to the European Commission and traders prepared for economic growth numbers due out later.
Major currencies traded in tight ranges, with the dollar edging lower from a 16-month high as investors took profits.
Sterling, which surged on Tuesday after Britain and the European Union agreed a draft Brexit deal, was calm as traders prepared for Prime Minister Theresa May's showdown with colleagues when she will try to sell her Brexit agreement.
Italy re-submitted its draft budget for next year to the European Commission with the same growth and deficit assumptions as a draft rejected last month for breaking European Union rules, but with falling debt, the new draft showed.
That rattled investors in Italian's volatile government debt markets and kept the euro under pressure. The single currency was flat at $1.1287 after trading above $1.13 late Tuesday. The euro hit a 16-month low of $1.1216 earlier this week.
Thu Lan Nguyen, a strategist at Commerzbank in Frankfurt, said she "did not anticipate an escalation in the crisis in Italy", but "much will depend on how the Europeans react. We are in a wait and see game."
Concerns that the row, along with slowing economic growth, would force the European Central Bank to postpone monetary tightening next year also might hurt the euro, she added.
Third-quarter euro-zone economic growth data will be published at 10.00 GMT.
The dollar index, a gauge of its value versus six other currencies, traded at 97.20 on Wednesday, down 0.1 per cent. The index hit a 16-month high of 97.69 on Monday.
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Read more:
Italy doesn’t budge in clash with EU over budget deficit
Euro falls to lowest in more than a year as Sterling also drops
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"Don't be fooled by the pullback in the US dollar ... nearly all of the major currencies rebounded because of local factors and not a shift in appetite for US dollars or change in economic fundamentals," said Kathy Lien, managing director of currency strategy at BK Asset Management.
Ms Lien expects a robust US economy, rising interest rates and its safe haven status will continue to strengthen.
The Swedish crown lost 0.7 per cent versus the euro after Sweden reported weaker-than-expected inflation. The kroner fell as low as 10.29 to the euro.
The dollar was unchanged versus the Japanese yen at ¥113.85. The yen touched a six-week low of 114.20 on Monday.
The Australian dollar weakened to $0.7224 against the US dollar, down 0.2 per cent.
The Canadian dollar was marginally lower at C$1.3240, trading near its four-month low as oil prices fell. Oil, one of Canada's major exports, dropped amid worries about weakening global demand and oversupply.
