The dollar slipped against most major currencies on Tuesday, hitting a three-month low versus the euro, as expectations of multiple decreases of U.S. interest rates by the Federal Reserve have spurred selling of the U.S. currency.
Growing tensions between Iran and the United States stoked fresh safe-haven buying of yen, which reached its strongest levels against the greenback since early January.
Traders await fresh clues on the Fed's stance on possible rate cuts, starting as soon as next month.
Last week's signal from the U.S. central bank that it was ready to lower borrowing costs to counter slowing domestic growth and sluggish inflation caused traders to exit their earlier bullish positions on the dollar, analysts said.
Interest rates futures implied traders fully priced in a quarter-point rate cut from the Fed next month and saw high rising probability of at least two more cuts after July.
Falling U.S. bond yields and bearish technical indicators have stoked the view the greenback would have more room to fall in the coming months, analysts said.
"This has more legs to go," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Investments in Boston.
The dollar was down 0.14% at 107.13 after hitting 106.78 yen during Asian trading, which was its weakest since Jan. 3.
Demand for the yen was underpinned by new U.S. sanctions against Iran's supreme leader and foreign minister. Iran said on Tuesday the move had closed off diplomacy between the two countries.
The greenback was 0.33% lower versus the pound.
It was modestly weaker against the Canadian, Australian and New Zealand dollars. On the other hand, the euro was down 0.12% at $1.1384.
The single currency retreated from $1.1412 earlier Tuesday, which was its highest since March 21.
The dollar index moved further away from its 200-day moving average at 95.995. Investors are monitoring whether U.S. President Donald Trump and Chinese President Xi Jinping will at least call a truce in their trade war when they meet at a summit of the G20 major economies in Osaka, Japan, later this week.
"The next risk event is the G20 summit. It will give us a sense just how far things are between U.S. and China on trade," Upadhyaya said. Trump considers his meeting with Xi an opportunity to "maintain his engagement" and see where China is on their trade dispute, a senior U.S. official said on Monday.