The dollar struggled near a four-month low against the yen on Wednesday as a bout of investor risk aversion hit US stocks and sent US Treasury yields sharply lower, eroding the greenback's interest rate allure.
The US currency was off 0.1 per cent at 111.670 yen after plumbing 111.430, its lowest since November 28.
The dollar also nursed large losses against the euro. On Wednesday, the common currency was a touch weaker at $1.0794 after surging 0.6 per cent overnight to $1.0819, its highest since February 2.
“A key factor behind the latest currency developments was the big drop in US equities. The question now is whether equities will keep falling,” said Shin Kadota, senior strategist at Barclays in Tokyo.
“Unlike the dollar and treasuries, the 'Trump trade' still had an impact on equities. But if such impact on equities is to fade, it would weigh on dollar/yen. The dollar will also suffer against other currencies as US yields would decline.”
Healthcare vote
Wall Street fell sharply on Tuesday as investors worried that President Donald Trump will struggle to deliver promised tax cuts that propelled the market to record highs, with nervousness deepening ahead of a key healthcare vote.
Stocks in Asia followed suit on Wednesday, with Japan's Nikkei dropping 2 per cent.
The dollar index against a basket of major currencies was little changed at 99.849 after retreating to a 1-1/2-month low of 99.642 overnight.
“The dollar has already fallen significantly, and technical factors and a further tumble in shares would be needed for it to decline further,” said Shusuke Yamada, forex strategist at Bank of America Merrill Lynch in Tokyo.
“But this is not yet 'risk off' of disastrous proportions as investors still appear to retain significant cash on hand,” he added.
The greenback has faced a confluence of negative factors recently, with the dollar index pulling sharply back from a peak above 102.00 scaled at the start of March.
Less-hawkish Fed
Dollar bulls were disappointed as the Federal Reserve hiked interest rates last week but did not signal a faster pace of future tightening as many had anticipated.
The US currency has also felt pressure from a resurgent euro.
Strong euro
Growing expectations of a tightening in European Central Bank monetary policy this year and the possibility of anti-euro candidate Marine Le Pen being defeated in the French presidential elections have supported the common currency.
The euro rose above $1.080 for the first time in six weeks on Tuesday after centrist French presidential candidate Emmanuel Macron's performance in a debate fuelled expectations he would win.
UK inflation
The pound hovered near a three-week peak of $1.2495 scaled overnight on data showing British inflation jumping above the Bank of England's 2 per cent target for the first time since late 2013.
The Australian dollar was down 0.4 per cent at $0.7662 , having lost some steam after rising to a four-month high of $0.7748 at the start of the week. The wobbly US dollar and higher commodity prices enabled the Aussie to reach that multi-month peak.
The benchmark 10-year Treasury note yield extended its decline to 2.41 per cent, its lowest in three weeks