LONDON: Sterling was the big loser among major currencies on Monday, sinking more than half a percent on concerns that a split in the ruling Conservative Party is deepening ahead of June's referendum on EU membership.
With stock markets mixed, the safe-haven yen inched higher against the dollar, euro and commodity-linked currencies like the Australian and New Zealand dollars.
The dollar index, which measures the U.S. currency's broad strength against a basket of its peers, was roughly steady at 95.102 after falling by more than 1 percent for the third week running last week.
Sterling was hit by worries about Prime Minister David Cameron's ability to keep Britain in the EU and his Conservative party together after leading 'Out' campaigner Iain Duncan Smith resigned from the cabinet late on Friday.
Duncan Smith's attack on "unfair" cuts in welfare combined with tax cuts for richer households also threatened some of the measures unveiled in last week's 2016 budget.
The pound fell 0.6 percent to $1.4397 and 78.28 pence per euro respectively.
"Sterling does not normally react strongly to UK politics so this is probably due to Brexit," said Richard Benson, head of portfolio investment at currency managers Millennium Global.
"The referendum is just making people focus on issues like this a lot more. It is down in response this morning."
In a week shortened to four days by the Good Friday holiday, dealers said the main focus was likely to be guidance from individual Federal Reserve policymakers after the U.S. central bank's meeting last week sparked a sell-off in the dollar.
The Fed cut the number of rises in rates it now expects this year from four to two as expected but the tone of the accompanying statement convinced a majority in markets that it might not even manage that much.
Positioning data on Friday showed speculators cutting back on bets on the dollar gaining for the sixth week running.
Atlanta President Dennis Lockhart speaks later on Monday.
In Paris, Federal Reserve Bank of Richmond President Jeffrey Lacker said the fall in market inflation expectations had given him "some pause" but that he saw nothing wrong in U.S. interest rates diverging from those of other major central banks.
Citi's head of global currency strategy Steven Englander said the message from officials this week would be crucial after a rough week for dollar bulls.
"Now consider the possibility that the Fed sends a signal that they do not think their concerns about global growth can be allayed until well into H2," he said. "(That would) smoke June as a possibility. If June is on then the divergence trade can come roaring back. If June is off, hello $1.20 per euro."
The dollar fell 0.1 percent to 111.50 yen and $1.1278 per euro respectively.
"We're in limbo on dollar-yen as long as we're between 111.00 and perhaps 112.50 and on the euro between 1.1150 and 1.1350," said Saxo Bank head of strategy John Hardy.
"We start leaning in favour of dollar strength if the dollar rallies through these levels. And even if we do see follow-on dollar weakness from here, it will most likely be against the riskier currencies."
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