The dollar began the week on a firm footing due to technical trading flows after the G7 meeting this weekend failed to make a clear statement supporting a stronger Japanese yen.
"Dealers talk of speculative long dollar positions that were cut pre-G7 being bought back," said Matthew Foster at Thomson IFR Markets. "Once this initial rush to get back into positive dollar positions is complete the dollar should find its upward momentum beginning to wane," he added.
The dollar gained mainly against the euro, which weakened to 1.2960 from above 1.3010 earlier this morning.
The Japanese yen, on the other hand remained weak after the G7 failed to address the issue of its weakness in its communique.
The yen had initially received a boost by a phrase in the communique which indirectly suggested the yen may be oversold.
"We are confident that the implication of these developments will be recognised by market participants and will be incorporated in their assessments of risk," the communique said about risk in the financial system. Analysts said that comment indicates that the G7 is confident that higher borrowing costs in Japan are likely soon, which would help the yen recover.
"The markets should take note that the conditions in Japan suggest monetary tightening and cautions against carrying on with the carry trade," said Simon Derrick, currency strategist at the Bank of New York.
However, the phrase in the communique was too indirect to keep the yen higher for long, analysts noted.
Elsewhere, the pound weakened after UK producer prices came in lower than expected. Input prices fell 2.0 pct from December to January, well below the 0.8 pct fall expected by analysts. Investec economist David Page said the fall in input prices will give "some psychological support that inflationary pressures are not building".
The fact that output price growth fell back, with the annual rate dropping to 2.1 pct from 2.2 pct, also suggests that there is no great inflationary pressures coming from the factory gate, which will come as a relief to the rate-setting Monetary Policy Committee, he said.