The safe-haven yen and Swiss franc gained on Tuesday and riskier currencies like the Australian and New Zealand dollars fell as geopolitical tensions rose with Western countries poised to take military action against the Syrian government.
Economic reports such as an upbeat German business sentiment survey have largely been ignored with investors focused on conflict in the Middle East.
Western powers told the Syrian opposition to expect a strike against President Bashar al-Assad's forces within days, according to sources who attended a meeting between envoys and the Syrian National Coalition in Istanbul.
"Coming within the current nervous state of the markets, any flare-up or intensification of Middle Eastern tensions will surely take a further toll on risk sentiment," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The Swiss franc and the yen usually climb in times of financial market stress and geopolitical uncertainty while growth-linked higher-yielding currencies are sold off.
The dollar extended losses to fall 1.5 percent versus the yen to 97.04 yen, pulling away from a near three-week high of 99.15 yen set on Friday.
The dollar fell 0.6 percent against the Swiss franc to 0.9178 francs.
The dollar index was last down 0.3 percent at 81.138.
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