Data released earlier showed that U.S. housing starts rose dropped 9.8% and came in at 999,000 units in December from an upwardly revised 1.107 million units in November.
Markets were expecting see 990,000 in new housing starts, and the better-than-expected figure boosted spirits by suggesting fundamental improvements are taking place in the U.S. housing sector.
Separately, official data showed that U.S. building permits declined 3% to 986,000 million units in December from 1.017 million units the previous month. Analysts had expected building permits to slip to 1.015 million units last month, though the dollar applauded housing starts.
Elsewhere, the preliminary Thomson Reuters/University of Michigan consumer sentiment index fell to 80.4 in January from 82.5 in December, defying expectations for a rise to 83.5.
Also in the U.S., the Federal Reserve reported that U.S. industrial production rose 0.3% in December, a fifth consecutive monthly increase and in line with market expectations, which firmed expectations for the U.S. central bank to continue winding down its USD75 billion in monthly bond purchases this year.
Fed asset purchases weaken the dollar by driving down long-term interest rates, sending investors to asset classes such as stocks.
The greenback was down against the pound, with GBP/USD up 0.37% at 1.6415.
The pound firmed after official data revealed that U.K. retail sales increased by 2.6% in December, far more than the expected 0.4% rise. Retail sales in November were revised down to a 0.1% rise from a previously estimated 0.3% gain.
The dollar was down against the yen, with USD/JPY down 0.08% at 104.27, and up against the Swiss franc, with USD/CHF up 0.72% at 0.9114.
The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.40% at 1.0975, AUD/USD down 0.56% at 0.8772 and NZD/USD down 1.15% at 0.8260.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.44% at 81.38.
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