The dollar hit a two-month high versus a basket of major currencies on Monday, as strong inflation data at the end of last week continued to bolster sentiment on the US economy in thin year-end trading.
Risk appetite was subdued as major central banks prepared to put into practice measures announced last week to help boost liquidity in cash-strapped money markets. The US Federal Reserve is due to offer the first $20 billion of 28-day funds through its Term Auction Facility on Monday, with the European Central Bank and the Swiss National Bank also offering cash.
"Risk aversion is driving the markets which is why the yen is holding up versus the dollar while other currencies are falling," said Niels From, currency strategist at Dresdner Kleinwort in Frankfurt. He said moves by the banks to inject liquidity into markets would be a short-term positive as a large number of dollars were being injected at a time of thin trading.
By 1123 GMT, the dollar was down 0.1 percent at 113.27 yen, while the euro had fallen 0.5 percent to 162.61 yen. The Australian dollar fell to its lowest in nearly three months versus the US currency, while the New Zealand dollar was down 1.2 percent on the day.
However some analysts are sceptical about the extent to which the move will help restore confidence in the longer term. The dollar set a two-month high versus a basket. The euro fell a 1-1/2 month low of $1.4332, while sterling - weighed down by more weak UK housing data - set a 2-1/2 month trough of $2.0103.
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