Recent comments by Chairman Jerome Powell have suggested the central bank will be patient in its policy decisions this year, citing growing risks to the US economy. The dollar index, a gauge of its value versus six major peers, traded 0.1 percent lower at 95.694, its weakest level in about two weeks, as a deal to reopen the US government for now reduced demand for the safety of the greenback.
"With no policy action appearing to be a forgone conclusion at this FOMC, what markets will gauge is how open the Fed is in shifting out of tightening mode," Mizuho Bank said in a note, referring to the meeting of the Federal Open Market Committee between Jan 29-30. Broad strength in Asian currencies was led by the Thai baht, which rose to its strongest level against the dollar since last April, rising about 0.5 percent.
The new year has seen investors turn bullish on most Asian currencies, with a recent Reuters poll finding that investors were most bullish on the Thai baht. Last week, the country set March 24 as the date for its long-awaited general election.
The Indonesian rupiah and Philippine peso among 2018's worst performers, gained 0.3 percent aand 0.2 percent, respectively India's rupee rose 0.1 percent to 71.080 to the dollar. On Friday, the government will announce its last budget before national elections, which are expected to be held by May.
The Chinese yuan gained 0.3 percent, rising to an over six-month high against the dollar, ahead of Chinese Vice Premier Liu He's visit to the United States on Jan. 30-31 for the next round of trade negotiations with Washington. Sources say China is keen to buy more US goods to reduce its massive trade surplus, but the two sides are far apart on other issues such as Washington's demands that Beijing make structural economic reforms.
Meanwhile, a Reuters poll late last week showed investors turned bullish on China's yuan for the first time in nearly eight months, coinciding with the escalation in trade tensions between the world's top two economies.