Against a basket of six major currencies, the greenback fell from a roughly 2-1/2-year peak hit earlier in the session to trade little changed on the day.
Data showed the US manufacturing sector contracted in September to its weakest level in more than a decade as business conditions worsened amid trade tensions between China and the United States.
"The ISM manufacturing data was pretty poor. No matter how much you slice and dice it, it's a pretty negative report," said Mazen Issa, senior FX strategist at TD Securities in New York.
The dollar was also pressured by a report showing US construction spending barely rose in August, as the largest increase in private residential investment in nine months was offset by a second straight monthly decline in outlays on nonresidential projects.
That said, the dollar's outlook remained solid despite Tuesday's weak data, analysts said.
In late morning trading, the dollar index was little changed at 99.353, after earlier touching 99.58, its highest level since May 2017. The next target for the dollar is the January 2017 high of 103.82.
The euro was up 0.2% against the dollar at $1.0912.
The weakness in economic indicators was not confined to Europe. Japanese big manufacturers' business confidence worsened to a six-year low in the July-September quarter, the Bank of Japan's closely watched Tankan survey showed.
Against the yen, the dollar fell 0.2% to 107.86 yen.
The Australian dollar fell 0.9% to $0.6689 after the RBA cut its cash rate to a record low of 0.75%, as expected.