The dollar trimmed its earlier gains versus the yen on Monday after U.S. President Donald Trump said the United States will impose new sanctions on Iran in response to Tehran's downing of a U.S. drone last week.
The greenback was down 0.01% at 107.29 yen. On Friday, it touched its lowest level since early January against the Japanese currency, which is seen as a safe-haven for investors in times of geopolitical turmoil.
Bitcoin held firm after its torrid run over the weekend, when it broke above $11,000 for the first time since March 2018.
The world's biggest and best-known cryptocurrency has risen nearly 200% this year as Facebook's plan to introduce its Libra digital coin stoked optimism about a widening usage of virtual currencies.
Investors awaited whether U.S. President Donald Trump and China President Xi Jinping would at least call a truce on their trade war at a summit in Japan later this week.
"The Trump-Xi meeting at the G20 this coming weekend and heightened tensions in the Gulf, with the U.S. set to impose new sanctions on Iran's crippled economy are keeping investors on edge," said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.
Both China and the United States should make compromises in trade talks, Chinese Vice Commerce Minister Wang Shouwen said on Monday. Markets believe that if Washington and Beijing fail to dial back their heated rhetoric on trade, then the Fed will be forced to cut interest rates to prevent a wider economic slowdown resulting from higher U.S. tariffs on imports.
Interest rates futures implied traders priced in a 100% chance the Fed would cut rates at the end of July, while they are betting on a high probability it might lower rates two more times after that, according to CME Group's FedWatch program.
Expectations of falling U.S. rates have weakened the greenback. An index that tracks the dollar against a group of six currencies fell 1.57% last week, its biggest weekly loss in four months.
The dollar index dipped 0.22% at 96.01.
The latest weekly positioning data confirmed the view of a weakening dollar. Hedge funds have turned mildly bearish on the greenback, and have increased bets on weakness in other currencies such as the Australian dollar as their outlook on the global economy has soured.
Among digital currencies, bitcoin was steady at $10,857.77 after breaking above $11,000 this past weekend on the Luxembourg-based Bitstamp exchange.