The US dollar fell on Monday as a rise in market sentiment pushed stock markets and riskier currencies higher, while the yen strengthened on reports that Japan will consider revising a decade-old action plan to fight deflation.
The U.S. dollar index, which measures the U.S. dollar against six major currencies, slipped 0.01% to 104.320, reversing some of its gains from the previous week after the U.S. Federal Reserve and the European Central Bank (ECB) raised rates and promised more to come.
A rebound in risk sentiment across the market pushed European shares higher after last week's big sell-off, while currencies including the euro and sterling retraced some of their losses from the previous two sessions.
The euro strengthened 0.3% to $1.06095, while sterling strengthened 0.3% to $1.21760. However, both remained lower than levels before the central bank's move last week.
The strengthening US dollar has risen broadly this year, up 9%, following concerns about the global economy and widespread inflation. However, it has shrunk nearly 7% in the fourth quarter as investors bet that peak inflation and an economic recovery may be in sight.
The Japanese yen strengthened 0.2% on the day to 136.420 per dollar following reports Japan is considering revising key monetary policy after a new Bank of Japan governor was appointed in April.
The government will consider revising a joint statement signed in 2013 that committed the central bank to reach the 2% inflation target as soon as possible, sources said.
A survey of business morale in Germany showed a bigger-than-expected increase in December, supporting broader market risk sentiment, as the outlook for Europe's biggest economy improved despite the energy crisis.
ECB vice president Luis de Guindos said on Monday that the euro zone would continue to raise rates to curb inflation and was not considering revising its own medium-term inflation target of 2%.
