Gold prices edged lower in European trade on Wednesday, pausing for breath after rallying to the highest level in around three weeks in the prior session.

Comex gold futures were at $1,239.46 a troy ounce by 3:00AM ET (0700GMT), down $2.50, or around 0.2%.

Prices settled higher for a third-straight session on Tuesday after hitting their highest level since June 30 at $1,244.10.

Gold's gains came as the dollar sank to an 11-month low after a second attempt by Republicans to replace Obamacare failed, delivering a major blow to President Donald Trump's agenda.

Investors were now more doubtful over the future of the Trump administration's planned tax reforms, given the difficulty the healthcare bill has faced in making progress.

Fading expectations for another rate hike by the Federal Reserve this year further weighed on the greenback.

Futures traders are pricing in less than a 40% chance of a rate hike by December, according to Investing.com’s Fed Rate Monitor Tool.

Market players will focus on U.S. housing sector data due later in the session to gauge the strength of the world's largest economy and how it will impact the Fed's view on monetary policy.

The U.S. central bank hiked rates at its June meeting and stuck to its forecast for one more rate hike this year, but recent dovish comments from Chair Janet Yellen and soft inflation data has raised doubts over whether policymakers will be able to stick to their planned tightening path.

The precious metal is sensitive to moves in U.S. rates, which lift the opportunity cost of holding non-yielding assets such as bullion.