Analysts warned that in such erratic trading, the dollar could once again trump the euro by the end of the North American session.
"Right now, a lot of people are probably viewing [the bank regulation plan] as potentially negative for the U.S.," denting the dollar, said Brian Kim, currency strategist at UBS in Stamford, Conn.
"But all the other things out there have not gone away," Kim said, referring to festering concerns over Greece's sovereign debt and worry that China could move to slow economic growth, which could affect the global economic turnaround.
Thursday afternoon in New York, the euro was at $1.4136 from $1.4102 late Wednesday, according to EBS via CQG. The dollar was at Y90.36 from Y91.23, while the euro was at Y127.52 from Y128.69. The U.K. pound was at $1.6211 from $1.6285. The dollar was at CHF1.0424 from CHF1.0443.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 78.278 from 78.369. It earlier hit 78.814, its highest level since Sept. 2.
The bank regulation plan would force institutions to choose between commercial banking and proprietary trading for their own profit, while seeking to limit the size of megabanks.
Though the proposal appears to move the U.S. back toward Depression-era barriers between commercial and investment banking, White House officials denied they are pushing for a return of the Glass-Steagall Act, which was repealed in 1999.
The dollar earlier had moved sharply higher against most rivals on the back of a slump in U.S. stocks and the concerns over Greek debt and Chinese growth.
Despite the euro's afternoon rebound against the dollar, the common currency remained lower against the yen.
The dollar's earlier rally began overnight when China reported its gross domestic product had expanded at 10.7% in the fourth quarter of last year, up from 9.1% in the third quarter. Beijing also disclosed that inflation had risen as far as 1.9%, instead of increasing to only 1.7% as expected.
The Chinese data signals that "tighter policy is just around the corner as Beijing seeks to prevent the economy from overheating," RBC Capital strategists wrote in a note to clients.
The euro had dipped to $1.4029, the lowest level since July 30, during overnight trading on the back a slew of negative news out of euro zone, including concerns over sovereign debt and weaker economic data.
A spokeswoman for the European Commission, the European Union's executive arm, Thursday said she isn't aware of any financial bailout packages being arranged for Greece.
The IMF warned that if Portugal doesn't reduce public wages and boost revenues this year, its deficit/GDP ratio will rise to 8.6%. Under the Maastricht Treaty, euro-zone countries are supposed to limit that ratio to 3%.
In the meantime, the latest PMI surveys from the region were disappointing on the whole with the composite PMI--covering both manufacturing and services--coming in at 53.6 this month, down from 54.2 last month and lower than the 53.7 that had been forecast.
"The two dominant themes in the currency markets are the Greek financial difficulties and also what's happening in China in terms of possible tightening," Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
Before swinging to its latest loss, the dollar had given up earlier gains after the Philadelphia Federal Reserve reported that its business activity index slowed to 15.2 in January, from 22.5 in December and compared to economists' estimates of an 18.0 reading.
(Fabio Alves in New York and Henry J. Pulizzi in Washington contributed to this article.)
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