Dollar falls to 3-week lows on US rate-hike doubts

Scott Barbour | Getty Images

The dollar was little changed on Monday after earlier hitting a three-week low versus a basket of major currencies on doubts whether the Federal Reserve would raise interest rates later this year in the face of a weakening global economy.

With short-dated U.S. rates pinned at the low-end of their recent trading range, the greenback has weakened especially against the euro. It was almost 10 cents lower against the euro from this year's highs back in March.

CommBank sees limited upside for Australian dollar

U.S. market activity was light due to a U.S. federal holiday.

Most U.S. central bank officials in recent days have said a rate hike by year-end remains on the table, after leaving rates near zero last month as they cited global risks and market turmoil.

The Fed, which last raised rates in 2006, will next meet on Oct. 27-28, followed by its last meeting of the year in December. Analysts polled by Reuters forecast a possible rate hike at the December meeting, while interest rates futures implied traders see such a move more likely in March 2016.

"Right now, market expectations is that the Fed will be on hold in October. We'll see in December," said Robert Zukowski, an analyst at 4Cast in New York.

On Monday, Atlanta Federal Reserve President Dennis Lockhart said that while the central bank could have enough data to consider a rate hike at its meeting later this month, it will have a "lot more" data in December.

Read MoreIt's carnage out there for emerging markets

On Sunday, Fed Vice Chair Stanley Fischer said a December rate hike was "an expectation, not a commitment."

The dollar index declined to a three-week low of 94.619 before edging up to 94.832, little changed from late Friday. The greenback was down 0.26 percent against the yen, at 120 , while the euro was up 0.1 percent versus the dollar, at $1.1361, after hitting a three-week high of $1.1396.

With a U.S. rate hike this year not a sure bet, emerging-market and commodity-linked currencies have recovered against the dollar in recent weeks.

"We could get some further weakness in the dollar versus the euro and yen, but those two are mainly along for the ride. Most of the weakness will be concentrated on emerging currencies," said Stephen Gallo, a strategistwith Canadian bank BMO in London.

The gained 0.37 percent to an eight-week high of $0.7362. It gained 4 percent last week, its biggest weekly increase since late 2011.