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The dollar had gained for eight consecutive sessions at the end of Monday, the most since February 2017, according to Refinitiv data. But the dollar index, which measures the currency against a basket of six rivals, was 0.36 percent lower on Tuesday at 96.71.
U.S. President Donald Trump said on Tuesday that he could let the March 1 deadline for a trade agreement with China "slide for a little while," but that he would prefer not to and expects to meet with Chinese President Xi Jinping to close the deal at some point.
Trump's top trade negotiator and Treasury secretary arrived in the Chinese capital on Tuesday for high-level talks later in the week as the world's two largest economies attempt to hammer out a deal to protect American trade secrets and avoid another escalation of U.S. tariffs on Chinese goods.
Some analysts suggested that softer data out of China, including expectations of slowing growth, could help facilitate a deal.
"The economy of China is not booming, so it makes sense that they are willing to sit down with the United States. There is leverage on the side of the United States," said Juan Perez, senior foreign exchange trader and strategist at Tempus, Inc.
The dollar ceded ground to the euro, which was up 0.51 percent at $1.1333, and to the British pound, up 0.35 percent, last at $1.2894.
Other safe-haven assets were also hit. Against the Japanese yen, the dollar was slightly stronger at 110.47 yen. The Swiss franc weakened against the dollar to $1.0059.
The dollar may have also been boosted as U.S. lawmakers reached a tentative agreement on border-security funding that might help avert another government shutdown, otherwise due to start on Saturday.
Trump expressed displeasure on Tuesday with a deal by congressional negotiators on border security spending that offered no funds for his promised U.S.-Mexican border wall, but did not reject it outright and indicated he did not expect a shutdown.
"With the government shutdown, people without paychecks and unstable trade dynamics all going on, it made sense for the dollar to rally," said Perez.
"Today is one of those days where we're getting signals that a lot of these issues can be resolved."