The dollar fell to a 10-month low on Tuesday, bearing the brunt of a selloff triggered by another setback to U.S. President Donald Trump's agenda and scaled back expectations for another rate hike at Federal Reserve this year.
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The announcement overnight that two Republican senators would not support the latest version of the healthcare bill -- had led to speculation that the reform proposal is likely to be withdrawn.
It fed into a belief that Trump's tax cuts and spending plans will come to nought.
The dollar index against a basket of major currencies sank to its lowest since last September with euro rising above $1.15 against the greenback for the first time since May 2016.
In Asian hours, the Australian dollar surged more than 1 percent after minutes from the central bank's last policy meeting showed it turning more upbeat on the economic outlook.
"The reform momentum of the Trump administration has received another blow," said strategists at Morgan Stanley led by Hans Redeker, in a note to clients.
The strategists, however, added the "Goldilocks" scenario for the United States -- loose monetary policy along with relatively healthy economic growth -- is likely to continue.
Expectations for the Fed hiking interest rates this year have been pushed back to the fourth quarter, the latest Reuters poll of more than 100 economists showed. A poll conducted last month predicted the Fed to raise rates by September.
Stocks struggled with European shares off more than 0.4 percent as a set of disappointing results from the likes of Ericsson and Lufthansa soured the mood.
Regional stocks have rushed back into the limelight this year as foreign investors have piled in on the back of receding political risks, upbeat earnings and an economic recovery gaining traction.
Bullish bets on euro zone equities were named as one of three top crowded trades in the latest Bank of America-Merrill Lynch global fund managers survey, leaving them most vulnerable to earnings disappointments or signs of central bank tightening.
The MSCI All-Country World index was little changed while U.S. stock futures were off 0.1 percent.
Tempered expectations for Trump's spending plans weighed on European bond yields which edged lower, tracking U.S. equivalents, after the collapse of the second healthcare bill.
U.S. 10-year bond yields fell after the news, while German 10-year yields dipped 2 basis points to 0.57 percent when European trading started on Tuesday.
Yields across the globe rose sharply after Trump won the U.S. election in November on promises for tax reforms and infrastructure investment that were expected to boost growth and inflation in the world's largest economy.
In commodity markets, oil prices steadied as expectations of firm demand, particularly from China, was met ample supply.
Brent crude futures eased 0.1 percent to $48.35 a barrel while U.S. crude oil fell 0.2 percent to $45.93.
(Reporting by Vikram Subhedar Editing by Jeremy Gaunt.)