The U.S. dollar weakened against its most major counterparts in European trading on Tuesday, as investors await testimony by U.S. Treasury Secretary nominee Janet Yellen that is expected to address the case for fiscal stimulus to support the economy from the pandemic crisis.

Yellen is likely to urge lawmakers to "act big" with the $1.9 trillion fiscal stimulus plan.

U.S. risks more painful recession without further financial aid and long-term scarring of the economy later, according to a copy of her prepared remarks.

Optimism about China's economy and strong earnings reports underpinned risk sentiment.

The inauguration of President-elect Joe Biden is due on Wednesday. Biden has set an ambitious goal of 100 million Covid vaccinations and mandating everyone to wear a mask to address the pandemic in his first 100 days in office.

The greenback dropped to a 4-day low of 1.3627 versus the pound from Monday's closing value of 1.3585. If the dollar falls further, it may find support around the 1.42 level.

The greenback was down versus the euro, at a 4-day low of 1.2137. The pair had closed yesterday's deals at 1.2075. On the downside, 1.24 is possibly seen as its next support level.

Survey data from the ZEW - Leibniz Centre for European Economic Research showed that German economic sentiment improved in January despite the uncertainty over the further course of the lockdown.

The ZEW Indicator of Economic Sentiment climbed 6.8 points to 61.8 in January. The reading was above the expected level of 60.0.

The greenback dipped to a 5-day low of 0.8868 versus the Swiss franc, compared to Monday's closing quote of 0.8901. The greenback is poised to find support around the 0.86 level.

Data from the Federal Statistical Office showed that Switzerland's producer and import prices decreased in December.

Producer and import prices fell 2.3 percent year-on-year in December.

The greenback eased back to 1.2720 against the loonie, a pip short of Asian session's 4-day low of 1.2719. The greenback was worth 1.2752 against the loonie at yesterday's close. The greenback is seen facing support around the 1.25 region.

The greenback hit a 4-day low of 0.7725 versus the aussie, down from yesterday's close of 0.7677. Next key support for the greenback may be seen around the 0.82 region.

On the other hand, the greenback was steady against the yen, after having climbed to a 5-day high of 104.09 in Asian deals. The pair was worth 103.68 when it ended deals on Monday.

After falling to a 4-day low of 0.7141 in the previous session, the greenback bounced off to 0.7114 against the kiwi. At yesterday's trading close, the pair was quoted at 0.7105. The greenback is likely to challenge resistance around the 0.68 level.

Data from Statistics New Zealand showed that New Zealand retail card spending growth accelerated in December driven by higher spending on groceries, furniture and electronics.

Total retail card spending grew 3.5 percent year-on-year, which was faster than the 1.4 percent annual growth posted in November.

Looking ahead, Canada manufacturing sales for November are set for release in the New York session.

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