The dollar pared early losses on Monday as oil prices retreated from record highs, but the yen suffered as support for Japanese Prime Minister Junichiro Koizumi slipped ahead of next month's polls.
Expectations that the jump in oil prices above $70 a barrel would give the Federal Reserve reason to slow its monetary tightening campaign hit the dollar earlier in the session.
Losses were most pronounced against the currencies of oil producers Canada and Norway.
US crude futures soared to a new record of $70.80 on Monday as Hurricane Katrina strengthened into one of the fiercest storms ever seen in the United States, threatening oil production facilities in the northern Gulf of Mexico.
The yen fell against the dollar and euro, as the surge in oil prices knocked Tokyo share indices off close to four-year highs and a poll showed less support for Koizumi's Liberal Democratic Party (LDP).
"It looks like most of the hurricane-related positioning has been done for now. But the dollar/yen move is still oil-related. The other crosses are more stable," said Peter Fontaine, currency strategist at KBC in Brussels.
By 1126 GMT, the dollar was down 0.1 percent at $1.2293. Earlier in the session it hit a 12-day low versus the single currency at $1.2345. But the dollar was up 0.3 percent against the yen at 110.42 yen and euro/yen hit two-week highs above 136 yen.
"US yields have fallen significantly today, down from 4.19 percent to 4.15 percent," BNP Paribas said in a research note.
London markets are closed on Monday for a holiday, with low trading volumes seen likely to exacerbate moves.
Most analysts still believe the Fed will raise rates to 4.00 or 4.25 percent by the end of the year. The Fed has lifted the funds rate 10 times since June 2004 to 3.5 percent.
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