LONDON: The yen and euro rose against the dollar on Tuesday as a recovery in risk appetite fizzled, with European shares and oil prices falling back after earlier gains.
Having taken a battering last week when a sharp fall in equities and a slide in oil prices to 13-year lows boosted demand for safe havens such as the yen, the dollar had made a solid recovery, gaining around 3 percent versus the Japanese currency since hitting a 15-month trough on Thursday.
But with the Saudi Arabian oil minister saying a freeze, not a cut, in oil producers' output would be adequate to improve the oil market, and that the Gulf state could cope with the current prices, investors' appetite for risk soured.
Having fallen more than 1 percent on Monday, the yen gained half a percent, trading at 114.08 against the dollar.
Commodity-linked currencies such as the Canadian and Australian dollars pared gains, though they were still up on the day.
New Zealand's dollar fell almost 1 percent after two-year inflation expectations fell to their lowest since 1994, fuelling expectations of more easing from the central bank.
Against a basket of currencies, the U.S. dollar was flat, having risen around 1.5 percent since late last week.
"Although risky assets (have been) performing better, U.S. front-end yields are not adjusting much higher in response, which suggests the market is reluctant to price in further Fed tightening at the same time as risk sentiment is improving," said BNP Paribas currency strategist Sam Lynton-Brown in London.
"That's important for FX because it suggests that even if we have a risk on move, the extent to which the dollar is going to be able to benefit is quite limited."
The dollar has this week gained almost 1 percent against the Swiss franc, another currency traditionally used as a safe haven in times of financial stress, after slipping to a four-month low on Thursday.
"I believe market pessimism, particularly towards the U.S. economy, that took hold at the start of the year was exaggerated," said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.
"Thanks in addition to the stance shown by the Japanese authorities to stem the yen's appreciation, I see the dollar recovering towards 120 yen. But we will need to see additional factors that point to a U.S. economic recovery."
In the wake of the yen's recent rally, Japanese Prime Minister Shinzo Abe said on Monday that Tokyo would take action against excessive currency volatility.
The euro edged up 0.1 percent to $1.1169, about 2 U.S. cents down from a 4-month high of $1.1377 hit last week.
The common currency was weighed down after European Central Bank President Mario Draghi said on Monday the central bank was ready to ease policy further in March.
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