The Dollar faced difficulty gaining momentum on Thursday as investors grew concerned about the effects of an escalating global trade war on US inflation and economic growth.
Meanwhile, the Japanese Yen edged higher, supported by favourable domestic conditions for further policy tightening.
Rising trade tensions and fears of a US recession have shaken global markets, causing extreme currency volatility as traders swing between relief and anxiety over President Donald Trump's unpredictable policy shifts.
Markets showed some signs of stability during the Asian session on Thursday as investors took a breather from the constant stream of headlines on US trade policy and turned their attention to Japan.
The Yen emerged as one of the strongest performers against the struggling Dollar, climbing 0.3% to 147.75 after Bank of Japan Governor Kazuo Ueda reiterated the bank's commitment to reducing its “too big” balance sheet.
Although the Bank of Japan (BOJ) is expected to keep interest rates steady at next week's policy meeting, a Reuters poll shows that over two-thirds of economists anticipate a 25-basis-point hike to 0.75% in Q3, most likely in July.
“The BOJ is likely to hike at least twice more this year, but we are tilting to three,” according to Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.
“Not only is the BOJ more confident about wages being strong this year, but growth is likely to also remain nimble for further hikes.”
Other currencies traded within narrow ranges as investors stayed cautious amid growing concerns over escalating trade tensions, Reuters reports.
On Wednesday, Trump threatened additional tariffs on European Union goods, prompting major US trading partners to announce plans to retaliate against the tariffs already imposed.
Meanwhile, the Swiss Franc gained support from safe-haven demand, trading near a three-month high at 0.8815 per Dollar.
Furthermore, the Euro and Sterling similarly remained close to their recent multi-month highs, with the single currency last trading at $1.0880 and the Pound at $1.2955 at the time of writing.
The Euro has gained further support from Germany's fiscal reset plan, while the Pound has benefited from Britain's more pragmatic stance on Trump's tariffs.
Elsewhere, the Australian and New Zealand Dollars faced pressure due to weak risk appetite, with the Aussie dropping 0.35% to $0.6299 and the Kiwi slipping 0.33% to $0.5712.
Meanwhile the Dollar index, measuring the greenback against six major rivals, stood near a five-month low at 103.57.