The dollar came under fresh selling pressure Thursday even after China hit back over a "fake news" report that it could slow or halt purchases of US Treasuries.
The greenback had dived Wednesday against most rivals as Bloomberg News reported that Chinese authorities reviewing foreign-exchange holdings had recommended the move.
Initially fruitful, the dollar's attempts to recoup the previous day's losses fizzled out by the European mid-afternoon, with the greenback lower against both the euro and sterling.
Earlier, China's State Administration of Foreign Exchange denied the Bloomberg report, saying in a statement: "We think this story could be quoting a mistaken source or it could also be a piece of fake news."
The report however briefly sparked fears on Wednesday that a huge amount of foreign demand for dollars would dry up.
"'China has reduced their purchase of US treasuries' was the news which crashed the prices of the US Treasuries and pushed the dollar index lower yesterday," noted analyst Naeem Aslam at trading firm ThinkMarkets.
"But the Chinese officials clearly labelled this as fake news and assured markets that China is only diversifying its options."
China has long invested heavily in US bonds as a way of controlling the value of its own yuan currency and Bloomberg News estimates it currently holds around $1.2 trillion in Treasuries, double what it owned 10 years ago.
"We do know that China is the largest buyer of the US Treasuries, and if there is any reduction in the Chinese appetite for the US Treasuries, it would have serious consequences for the global markets," cautioned Aslam.
Elsewhere on Thursday European stock markets, having opened steady, slipped as the session wore on and after London briefly touched another record high despite retail gloom.
The retail sector was hit by underwhelming Christmas trading updates from supermarket giant Tesco and clothing-to-food chain Marks & Spencer.
"Retail stocks in the UK have been smashed," noted Manulife Asset Management equities analyst Will Hamlyn.
"They are so out of favour at the moment partly due to Brexit, partly due to the weak Christmas season (and) partly due to expected share losses to online" competition.
Wall Street posted gains at the opening bell.
- Oil surge -
Oil prices meanwhile were mixed Thursday amid falling US stockpiles, unrest in key producer Iran and hopes that Trump's tax cuts will boost demand.
In morning London deals, European benchmark Brent hit $69.62 per barrel -- the highest level since May 2015, but then eased back to post losses.
Elsewhere, Asian equity markets mostly fell as this year's rally gave way to profit-taking in much of the region.
However, Hong Kong extended a record winning streak to 13 days thanks to inflows of cash from mainland investors.
- Key figures around 1440 GMT -
Euro/dollar: UP at $1.20.34 from $1.1948 at 2200 GMT Wednesday
Pound/dollar: UP at $1.35.27 from $1.3508
Dollar/yen: UP at 111.43 yen from 111.41 yen
London - FTSE 100: DOWN 0.1 percent at 7,744.50 points
Frankfurt - DAX 30: DOWN 0.6 percent at 13,199.77
Paris - CAC 40: DOWN 0.2 percent at 5,491.30
EURO STOXX 50: DOWN 0.3 percent at 3,598.80
New York - DOW: UP 0.2 percent at 25,418.98
Tokyo - Nikkei 225: DOWN 0.3 percent at 23,710.43 (close)
Hong Kong - Hang Seng: UP 0.2 percent at 31,120.39 (close)
Shanghai - Composite: UP 0.1 percent at 3,425.34 (close)
Oil - Brent North Sea: DOWN 2 cents at $69.18 per barrel
Oil - West Texas Intermediate: UP 35 cents at $63.92