The dollar's two-day rally against the euro ended ahead of a key U.S. service sector report due later Wednesday.

The dollar fell to $1.4172 per euro as of 12:10 p.m. in Tokyo from $1.4154 in New York late Tuesday. The dollar was at 115.73 yen from 115.74 yen.

The dollar had been a freefall last week - reaching all time lows against major currencies - due to concerns that inflation was on the rise after the Federal Reserve cut interest rates prevent the economy from falling into recession.

On the watch list for investors Wednesday is the Institute for Supply Management's indicator for the service sector, which has been steady for the last two months at 55.8. Readings above 50 indicate growth in the sector. A drop in the index could indicate slowing economic activity, possibly providing some fuel for the Fed to cut rates further.

On Tuesday, the dollar rose despite a report indicating that the housing market may still not have hit bottom. The Pending Homes sales Index fell 6.5 percent, more than the expected 2.1 percent drop.