The euro bounced from near-parity versus the dollar by 0.2 percent to $1.0057 after falling 0.4 percent to as low as $1.00005 earlier and pushed into positive territory in volatile London trading on Tuesday.

Traders reported the presence of large buy orders at the parity level via cash and derivative structures, Reuters reported.

The single currency's jump yanked the dollar index lower with the unit trading at 108.03.

The euro slumped to a 20-year low and approached dollar parity on Monday on concerns that an energy crisis will tip the region into a recession.

In the meantime, the dollar was boosted by expectations that the Federal Reserve will hike rates faster and further than peers.

The biggest single pipeline carrying Russian gas to Germany, the Nord Stream 1 pipeline, began 10 days of annual maintenance on Monday. Germany and other European countries are watching anxiously to see if the gas comes back on with relations between Russia and the West at their lowest in years because of the Russia-Ukraine conflict.

"The most proximate concern for markets is whether or not Nord Stream 1 is going to come back online," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto, adding that "the markets will likely price in a recession" for the region if it doesn't.

The U.S. currency has gained on expectations that the Fed will continue to aggressively raise rates as it tackles soaring inflation.

The Fed is expected to lift rates by 75 basis points at its July 26-27 meeting. Fed funds futures traders are pricing for its benchmark rates to rise to 3.50 percent by March, from 1.58 percent now.

(With input from agencies)