The dollar dipped to a near three-week low against the yen in thin year-end volume on Tuesday as investors favoured riskier assets, led by renewed optimism about global growth. The greenback was off 0.2% at 108.64 against the Japanese yen, the weakest since Dec. 12 and on track for its third straight session of losses.

The dollar index, which measures the currency against a basket of rivals, was a shade weaker at 96.695. On Friday, the index had suffered its biggest one-day fall since March, which left its gains for the year at about 0.5%, compared with returns of 4.4% in 2018. It is now on track for the smallest rise since 2013. Encouraging news on the Sino-US trade deal boosted risk sentiment in currency markets overnight.

The White House's trade adviser, Peter Navarro, on Monday said the US-China Phase 1 trade deal would likely be signed in the next week, but said confirmation would come from President Donald Trump or the US Trade Representative. Increased optimism about US-China trade relations and an improved global growth outlook drove investors out of other safe-haven assets like Treasury bonds while the risk-sensitive Australian and New Zealand dollars jumped to five-month highs.

China's yuan strengthened in the offshore market against the dollar to 6.9718, its highest since Dec. 13. It was last at 6.9743. The yuan was still on track for a second year of losses, however, as the Sino-US trade dispute and domestic economic weakness took a toll. The onshore yuan was down around 1.5% for the year, after losing 5.3% in 2018.

Investors' appetite for risk also helped drive the euro to a 4-1/2-month high of $1.121 on Monday. It was last up 0.1% at $1.1209. Signs that the euro zone economy may be stabilising have lifted the single currency in recent weeks. Sterling was last treading water at $1.3115 against the dollar after rising 2.8% so far this year. Concerns that Britain is headed for a disruptive "hard Brexit" at the end of 2020 have hurt the pound since mid-December.