The dollar dropped for a second day on Wednesday as expectations of a ceasefire in the Middle East conflict grew after the US signalled that an end to the war could be near, even though markets remained on edge on fears of escalation.
The White House said US President Donald Trump would address the nation "to provide an important update on Iran" at 9 p.m. EDT on Wednesday (0100 GMT on Thursday).
Trump said on Tuesday the US could end its military campaign against Iran within two to three weeks, while Secretary of State Marco Rubio told Fox News Washington could see the "finish line" in the Iran war, according to Reuters.
Expectations that a ceasefire could be near have reversed some of the most popular trades since the war began in late February.
The yen recovered from this year's low of 160.46 per dollar, moving back through the psychologically important 160 level that had fanned concerns about intervention by Japanese authorities. The euro hit its highest level in a week.
The dollar index, which measures the currency against a basket of currencies including the yen and the euro, was last down 0.3% at 99.456, slipping to a one-week low after a 0.65% fall on Tuesday.
"Markets are increasingly buying into the notion of de-escalation in the Middle East overall," said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
"Markets are optimistic. We're seeing some relief with rates going lower, equities going higher and the price action in euro-dollar reflects that quite well."
The euro edged up 0.5% versus the dollar to $1.1603, after rising 0.8% on Tuesday.
The Japanese yen was up 0.1% at 158.46 per dollar. Sterling strengthened 0.7% to $1.3313.
At the same time, there were still signs of escalation in the conflict.
US Defense Secretary Pete Hegseth said the next few days in the war against Iran would be decisive and warned Tehran that the conflict would intensify if it did not make a deal.
The dollar should remain supported by the Fed's cautious stance on rate cuts, while the yen is being underpinned by rising expectations of a Bank of Japan hike in April, said Sho Suzuki, market analyst at Matsui Securities.
"We may see a tug-of-war between dollar strength and yen strength, with USD/JPY trading sideways in the upper 150s," he said.
The Australian dollar strengthened 0.7% to $0.6946. New Zealand's kiwi strengthened 0.4% to $0.5770.
