The dollar held near one-week lows today as the sudden dismissal of US Secretary of State Rex Tillerson and news that Washington is seeking to impose tariffs of up to $60 billion of Chinese imports reverberated through currency markets.
The prospect of a global trade conflict has weighed on the dollar and any escalation would significantly weaken it further.
The greenback has been supported by growing expectations of as much as four rate hikes this year.
The dollar index was broadly flat at 89.56, its lowest level since March 8 and within striking distance of a one-month low of 89.40.
US President Donald Trump is seeking to impose tariffs on up to $60 billion of Chinese imports and will target the technology and telecommunications sectors, two people who discussed the issue with the Trump administration have said.
The news comes before a crucial G20 meeting next week where the world's leaders will pledge to fight unfair trade practices and stress the role of global trade rules in the backdrop of a brewing trade war.
The dollar also lost some traction after February US inflation data yesterday matched expectations, suggesting the Federal Reserve remained on track to raise interest rates at a gradual pace.
Elsewhere, the euro hit the day's lows after ECB President Mario Draghi struck a dovish tone in a speech.
The single currency was down 0.2% on the day, at $1.2364.
The European Central Bank needs further evidence that inflation is rising towards its target but is also growing more confident that it is on track to do so, ECB President Mario Draghi said today.
The pound rose about 0.2% to a two-week high of $1.3996.