The dollar touched a two-month low against the euro and slipped against the yen on Tuesday amid growing tensions over Iran's nuclear programme and renewed worries about the US housing market.
US data later in the day could point to a slowing economy and offer reasons for the Federal Reserve to cut interest rates later this year, while investors are keeping an eye on rising defaults among high-risk borrowers in US sub-prime mortgages.
Traders were beginning to shift gear after pummelling the low-yielding yen and turning some of their focus to the US economy and any broader fallout from the sub-prime troubles, as well as geopolitical concerns.
"The focus had been on the yen until now, but the market is realising that the dollar isn't doing all that well either," said a trader at a major Japanese trading house.
World powers agreed at a meeting in London on Monday to work on a new UN Security Council resolution to apply pressure on Iran over its nuclear programme while remaining committed to seeking a negotiated solution, British officials said. The euro briefly pushed up to $1.3205, the highest since early January, before pulling back to be little changed on the day at $1.3180.
The dollar slipped to 120.40 yen down about 0.2 percent on the day. The US currency fell partly on profit-taking after having peaked twice at 121.64 yen last week. The single currency also shed 0.2 percent to 158.70 yen but was still within range of a record low 159.63 yen hit late last week.
The Swiss franc, commonly regarded as a safe-haven currency, rose to around 1.2280 francs per dollar also a two-month high. Some traders said rising geopolitical concerns were taking some shine off the carry trade, a risky strategy in which investors borrow low-yielding currencies to invest in higher-yielding ones, and that this was offering some support to the yen.
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