The dollar steadied today, holding near a five-month low hit against a basket of currencies last week when concern that US government debt may lose its AAA rating prompted investors to sell the world's reserve currency.
It slipped against the yen but briefly rose against the euro after South Korea's Yonhap news agency reported on today that North Korea had conducted a nuclear test.
Trade was slow as investors kept to the sidelines ahead of the US Treasury's two-, five- and seven-year debt auctions this week totalling $101 billion - an important test of investors' appetite for dollars and dollar assets.
Market players also hesitated to take fresh positions as US financial markets are closed today for the Memorial Day holiday, while British markets are also shut for a bank holiday.
The dollar index, a gauge of the greenback's performance against six major currencies, was barely moved at 80.071, near the five-month trough of 79.805 hit on Friday.
The dollar index lost 3.7 percent last week, its steepest weekly fall since the Federal Reserve launched its large-scale buying of Treasuries in late March, which hurt the dollar due to worries the move could cause an effective devaluation.
The dollar came under pressure after Standard & Poor's said on Thursday it could downgrade Britain's triple-A credit rating.
The move sparked broad selling of US stocks and bonds, reflecting anxiety over the US government's mounting indebtedness as it grapples with the worst financial crisis in generations.
The dollar slipped 0.3 per cent from late last week to 94.52 yen. It struck a two-month low of 93.85 yen on trading platform EBS on Friday.
The euro was little changed on the day at $1.3994, within striking distance of $1.4051, its highest since early January. It hit the day's low of $1.3975 after the report on a possible North Korean nuclear test.
The dollar index hit a three-year peak in March as investors sought the safety of the dollar during the slide in global stock markets.
Hopes that the worst has passed in the global recession have grown since then, boosting stocks. That has improved investor risk appetite, hurting the dollar while helping the euro rise above $1.40 and sterling to rise near $1.60.
Sterling fell 0.4 percent to $1.5875 as investors locked in profits after it struck a 6-1/2-month peak of $1.5947 on Friday.
The pound initially slid following the S&P's announcement about Britain's debt rating. But it soon reversed course as investors took the view that major industrial nations would likely see increased fiscal spending across the board.
The potential bankruptcy of US auto giant General Motors Corp is expected to return to the spotlight this week.
GM borrowed another $4 billion from the US Treasury on Friday and won a cost-cutting deal from Canadian auto workers as a showdown with bondholders set the stage for a bankruptcy filing by the end of the month.
Reuters