The dollar eased against the safe-haven yen and the low-yielding euro on Monday as investors around the world knocked down equities and trimmed bets against currencies popularly used to fund risky carry trades.
Under carry trades, investors sell a low-yielding currency to buy riskier, higher-yielding ones for better returns. When volatility rises in global financial markets and stocks fall, they tend to take these positions off the table.
The pan-European FTSEurofirst 300 shares index posted its worst monthly performance since August 2011 with a 9 percent loss, in part because U.S. policymakers appear to be nearing interest rate hikes.
Stock markets in China and Japan also fell, with Wall Street indexes down about 0.80 percent in late New York trading and en route to the biggest monthly decline in more than three years.
"Stock markets are in focus, and absence of risk appetite is acting as a headwind to the dollar," said Nordea FX strategist Niels Christensen.
Volumes were relatively low. London was shut for a holiday, and traders were awaiting Friday's key U.S. employment report for August which may hint at whether the Federal Reserve will lift interest rates in September.
Fed Vice Chairman Stanley Fischer said in a speech on Saturday that U.S. inflation was likely to rebound as pressure from the dollar fades, allowing the Fed to raise rates gradually.
That revived ideas of a September rate hike and helped the dollar rise against some other currencies, such as the British pound and the Swiss franc, according to Win Thin, global head of emerging markets at Brown Brothers Harriman & Co in New York.
"Fischer pushed back against the dovish sentiment," Thin said, "and that gave the dollar some traction."
The dollar index, which tracks the greenback against a basket of six major currencies, was down 0.16 percent on the day and nearly 1.5 percent lower for the month. It was well above a seven-month low of 92.621 reached a week ago as the prospect of a slowdown in China sent global stocks plunging.
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The dollar shed 0.13 percent to 121.23 yen, down about 2 percent for August but well above a seven-month low of 116.15 touched a week ago. The euro rose 0.3 percent to $1.1225, below last week's high of $1.1715 but still up 2.4 percent for the month.
The dollar was up 0.44 percent against the Swiss franc to 0.9672 franc and off 0.31 percent against the pound at $1.534.