TOKYO: The dollar dipped versus the yen on Monday, taking a cue from weaker Tokyo equities, although potentially decisive events such as the Federal Reserve meeting midweek limited movements.
The dollar dipped 0.2 percent to 101.84 yen, moving towards the bottom of its relatively tight 102.80-101.60 yen range seen so far this month. Tokyo's Nikkei shed 0.6 percent as the insurgency in Iraq kept investors on edge.
"The conflict in Iraq and resulting rise in oil prices are generally considered causes for the 'risk off' moves we are seeing," said Kyosuke Suzuki, director of forex at Societe Generale in Tokyo.
"But as far as dollar/yen is concerned, it appears that some players are selling the dollar automatically in trades linked to the Nikkei's fall. The flow is not yet significant enough to be deemed safe-haven bids for the yen," Suzuki said.
The dollar index, a measure of the greenback's strength a basket of key currencies, stood little changed.
The index had gained about 0.3 percent the previous week, helped by factors including higher US Treasury yields and its status as a safe haven as conflict in Iraq escalated. Both the dollar and yen tend to attract safe-haven bids during times of geopolitical tension.
In focus was whether the dollar can gain further should the Federal Reserve provide new hints on the timing of interest rate hikes when it concludes its two-day policy meeting on Wednesday.
Currently expectations are for the Fed to begin raising rates about a year from now, and the dollar is seen benefiting from any hawkish comments by the central bank.
"Key points are if Fed Chair (Janet) Yellen upgrades her view on the economic view in light of recent economic indicators and if the central bank raises its yield forecast, which would reignite expectations for earlier rate hikes," said Junichi Ishikawa, market strategist at IG Securities in Tokyo.
"Whether geopolitical risks have any currency impact depends on how the situation in Iraq and Ukraine impacts the equity markets, but so far their reaction appears limited," he said.
The euro traded little changed at $1.3537, within sight of a four-month trough of $1.3503 hit earlier this month when the European Central Bank eased monetary policy.
Market participants expect the single currency to come under further pressure against the dollar should the Fed's statements on Wednesday cause a further divergence in monetary policies between the ECB and the Fed.
"We prefer staying short euro versus dollar as the Fed's constructive view on the US economy would come in contrast to the ECB's cautious stance on euro area inflation," strategists at Barclays wrote in a note to clients.
The dollar, on the other hand, was on the back foot against currencies enjoying support from central banks more hawkish than the Fed.
The New Zealand dollar inched up 0.1 percent to $0.8675, hovering near a one-month high of $0.8700 hit late last week when the Reserve Bank of New Zealand indicated it would continue hiking rates.
Sterling, which has been boosted recently by the hawkish approach taken by the Bank of England, was at $1.6980, in close reach of $1.6995, highest since May 6.
BoE Governor Mark Carney had said on Thursday that interest rates could rise sooner than financial markets expect, in a surprisingly stark warning that monetary policy may start to tighten in less than a year.
The euro fell to as low as 79.68 pence, a trough not seen since November 2012.
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