The dollar was down on Monday morning in Asia, while the yen, a fellow safe-haven asset, sank to its lowest level in nearly three months.
Riskier assets, such as the Australian dollar, continued to recover from an almost one-month low as fears of the economic contagion from China Evergrande Group's (HK:3333) debt situation receded slightly.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.12% to 93.222 by 12:11 AM ET (4:11 AM GMT).
The USD/JPY pair edged down 0.14% to 110.56.
The AUD/USD pair was up 0.32% to 0.7281 and the NZD/USD pair edged up 0.12% to 0.7020.
The USD/CNY pair edged down 0.12% to 6.4585 and the GBP/USD pair inched down 0.04% to 0.3677.
The benchmark 10-year U.S. Treasury yield climbed to 1.466% for a second day on Monday, its highest level since Jul. 2, 2021.
"The correlation between U.S. bonds yields and USD-JPY has picked up. USD-JPY looks a little stretched, so I’d be wary to chase here, but I would be looking for a re-test of 110.50 as a potential support zone within what is a progressively bullish trend,” Pepperstone head of research Chris Weston said in a note.
The higher U.S. yields also attracted Japanese investor money, also contributing to the yen’s fall.
"The U.S. dollar is likely to remain caught in the cross-currents of a more hawkish Fed and fading concerns around a potential Evergrande default," Commonwealth Bank of Australia (OTC:CMWAY) (CBA) analysts said in a client note.
Concerns that China Evergrande could default on its $305 billion of debt have cast a shadow over markets recently, although some of those fears seem to be receding. The People's Bank of China injected a net CNY100 billion ($15.46 billion) into the financial system on Monday, on top of the net CNY320 billion added last week.
However, investors continue to keep a wary eye on the situation.
"Nevertheless, the risks are skewed to a firmer dollar," with any renewed Evergrande worries unlikely to trigger the level of market volatility of the previous week, the CBA note added.
In Europe, the euro was little changed at $1.1724 even as Germany’s Social Democrats narrowly won over incumbent Chancellor Angela Merkel’s Christian Democratic Union of Germany party in Sunday’s election. Investing.com