The dollar is headed for its second consecutive weekly loss on Friday as threats of tariffs on countries doing business with Cuba have heightened global tensions that have weakened demand for U.S. assets.
The White House said President Donald Trump signed an executive order imposing tariffs on countries that supply Cuba with oil, adding to already existing geopolitical turmoil and including Iran, Venezuela, Greenland, and Europe.
Reports that Trump is considering strikes against Iran have led to higher oil prices and increased pressure on the dollar index.
In the United States, a glimmer of hope emerged thanks to an agreement in the Senate that would avert a partial government shutdown. In Japan, data showed inflation slowing in Tokyo but remained in line with the central bank's target.
Westpac Group's chief economist, Mantas Vanagas, wrote in a note that the dollar index continued its downward trend as Trump's threats of military action against Iran increased the pressure.
The dollar index, which measures the performance of the US currency against a basket of currencies, rose 0.2 percent to 96.35, reducing its weekly losses to 1.1 percent.
The euro fell 0.2 percent to $1.194. The yen declined 0.17 percent to 153.39 against the dollar. Sterling slipped 0.1 percent to $1.3791, according to Reuters data.
The dollar hit a four-year low earlier in the week after Trump appeared to ignore the currency's decline, then recovered somewhat after Treasury Secretary Scott Bessent said Washington was pursuing a strong dollar policy.
Several sources said Trump is considering options for dealing with Iran, including targeted strikes on security forces and leaders to encourage protesters to take to the streets. Trump described the ships in the region as a fleet sailing toward Iran.
The dollar ended last week with its biggest drop since last April, partly due to concerns about US policy towards Greenland.
The dollar received some support after the Federal Reserve kept interest rates unchanged on Wednesday, citing what US central bank chairman Jerome Powell described as a strong economy.
The dollar's decline provided some relief for the Japanese currency, which traded in the 152-154 range against the dollar for most of the week, thanks to talk of an interest rate review by the United States and Japan last week – a move often seen as a prelude to intervention.
Data released on Friday showed that core consumer prices in Tokyo rose 2 percent in January compared to last year, slowing from the previous month but in line with the Bank of Japan's target.
The Australian dollar lost 0.2 percent to $0.7033. The New Zealand dollar also fell 0.2 percent to $0.6066.
As for cryptocurrencies, Bitcoin fell 0.1 percent to $84,309.27, and Ether dropped 0.3 percent to $2,808.19.
