The Chinese yuan weakened on Wednesday as a new US-China trade war dented Chinese markets returning from an extended Lunar New Year break. The yen jumped against the dollar as traders raised their bets on Bank of Japan rate hikes this year.
The dollar was last up 0.47% against the yuan to 7.272 in onshore trading, though its gains were capped by the People's Bank of China setting a stronger-than-expected midpoint rate, around which the currency is allowed to trade in a 2% band.
Investors had watched the fixing for clues on whether Beijing would allow the currency to weaken to blunt the impact of new tariffs imposed by U.S. President Donald Trump.
China on Tuesday imposed tariffs on U.S. imports in a swift response, and Trump said the same day he is in no hurry to speak to Chinese President Xi Jinping to try to defuse the situation.
The offshore yuan was marginally stronger at 7.276 per dollar; it fell to a record low of 7.3765 per dollar at the start of the week.
During Trump's first term as president, the yuan was allowed to weaken more than 12% against the dollar to help make Chinese goods more competitive.
The dollar index was last down 0.39% at 107.63, mainly weighed down by the yen, after rising as much as 1.3% on Monday to 109.88.
The euro and pound climbed around 0.22%.
The dollar fell to its lowest in six weeks at 152.92 per dollar as strong Japanese wage data and comments from a BOJ official hinting at further rate hikes boosted the country's currency.
Data showed Japan's December inflation-adjusted real wages rose 0.6% year-on-year thanks to a wintertime bonus bump, with government officials expressing optimism that wage hike momentum is growing.
That left traders ramping up bets of more BOJ rate hikes this year, with just over 30 basis points priced in by the year-end.
Elsewhere, the U.S. dollar slipped against its Canadian counterpart as the latter continued to recover from Monday's 22-year low.
The U.S. currency climbed against the Mexican peso but remained below the almost three-year high of 21.28 hit on Monday.