Dollar at three-month lows as Treasury seeks to rein in surging bond yields

Meanwhile, concern about inflation deepened at the Fed's meeting last month, with several policymakers ready to raise interest rates and many saying a hike in borrowing costs would be needed if inflation did not decline to the U.S. central bank's 2% target, the minutes of the session showed.

Nick Twidale, chief market strategist at ATFX Global, said the next few sessions would provide an indication of the market's view on the Treasury move.

"Always feel the market will want to test the credibility of the action, which could lead to a further dampening of sentiment on the medium term," he said.

The implication for the dollar is that it has lost one of its strongest remaining pillars of support and the currency's high for the year may be behind it, said Matt Simpson, senior market analyst at StoneX.