The safe-haven yen and Swiss franc retreated on Monday, as risk sentiment improved and fears about the coronavirus eased after China took measures to cushion the impact of the new epidemic and pledged to do more to contain it and support the country's financial markets.
China's offshore yuan dropped to a more than seven-week low against the U.S. dollar on Monday, but trimmed its losses as New York trading got underway.
After rising to multi-week highs against the dollar last week in the face of the coronavirus scare, the yen and Swiss franc took a pause from their climb as markets cheered China's efforts.
China's central bank unexpectedly lowered interest rates on reverse repurchase agreements by 10 basis points and injected 1.2 trillion yuan ($174 billion) worth of liquidity into the markets via reverse repo operations on Monday.
Chinese authorities also pledged to use various monetary policy tools to ensure liquidity remains reasonably ample and to support firms affected by the virus epidemic, which has so far claimed 305 lives, all but one in China.
"Traders are looking for value where they can," said Karl Schamotta, chief market strategist, at Cambridge Global Payments, in Toronto. "A large part of what we're seeing in the market today is bargain-hunting in anticipation of a return to stimulus from the Chinese government."
Chinese markets took a beating in the first trading session after an extended Lunar New Year break. The offshore yuan dropped as low as 7.023 yuan per dollar. The dollar was last up 0.2% against the Chinese currency. The dollar also rallied more than 1% against the onshore yuan from levels before the holiday to 7.0155 yuan.
In morning trading, the dollar rose 0.2% against the yen to 108.61 , off a three-week low set on Friday.
The dollar extended gains versus the yen after data showed the Institute for Supply Management's U.S. manufacturing index rose in January.
The Swiss franc also fell against the dollar, which climbed 0.3% to 0.9662 franc. Gains against the yen and Swiss franc pushed the dollar index higher, which was last up 0.4% at 97.797.
The euro also fell 0.4% versus the dollar to $1.1044. The Australian dollar was up 0.1% at US$0.6697, holding near a 10-1/2-year low of $0.6670 touched last October.
The currency is often regarded as a proxy for the yuan, being more freely traded and because of Australia's reliance on trade with China. Sterling, meanwhile, tumbled after Britain laid out a tough opening stance for future talks with the European Union following its departure from the bloc last week.
Sterling was last down 1.3% at $1.3030, retracing all of its gains following the Bank of England's decision last week to keep interest rates on hold.