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[TOKYO] The US dollar fell against the yen, euro and a string of emerging Asian currencies on Tuesday as investors turned cautious and markets increasingly price in a long-awaited US interest rate hike, analysts said.
Traders have been bidding up the dollar in anticipation of the rate rise - a plus for the greenback - with the Federal Reserve widely expected to move later this month.
The greenback has been sitting at seven-month highs against the euro, which has been sold on expectations that the European Central Bank will announce more stimulus measures at its Thursday meeting.
"It's difficult to buy up the dollar unless there is an indication for successive increases which are more than what markets are expecting" Yasunori Takano, chief strategist, at FX Prime by Gmo Corp., told Bloomberg News.
"Markets have nearly priced in a December rate increase, so chances are there won't be much more fresh buying incentives. That could spark profit taking."
In midday trading, the dollar weakened to 122.85 yen from 123.09 yen Monday in New York, while it was down against most other Asian units, including the Indonesian rupiah, Malaysia's ringgit and the South Korean won.
"The US dollar was clearly giving some gains back which helped many Asian currencies pairs," Angus Nicholson, a market analyst of IG Ltd, said in an email to clients.
Dampening sentiment, China's economy showed more signs of weakness in November as a key factory activity gauge on Tuesday came in at its lowest level in three years.
Eyes on are now on the ECB meeting where fresh stimulus could push down the euro further, amid speculation that it would soon hit parity with the dollar - last seen in 2002.
On Tuesday, the 19-nation unit inched up to US$1.0591 from US$1.0566 in US trade, while it bought 130.11 yen against 130.05 yen.
The likely divergence of monetary policy in the United States and Europe has put pressure on the euro, which is at its weakest against the dollar since early April.
Also in focus is a US jobs report on Friday that possibly could bolster the case for the Fed rate hike.
In other trading, the rupiah gained 0.34 per cent against the dollar, while the ringgit was up 0.33 per cent and the won rose 0.04 per cent. The Taiwan and Singapore dollar also advanced against the US unit. The Thai baht declined.