NEW YORK The yen and the Swiss franc rose on Monday with the Japanese currency briefly touching a four-month high against the euro, as investors sought safety from Iraq's worsening conflict and a gas dispute between Russia and Ukraine.
Sterling climbed above $1.70 against the dollar for the first time in nearly five years, with investors betting that the Bank of England will tighten monetary policy before the end of the year.
The dollar slipped as traders await clues from the U.S. Federal Reserve on the timing of an interest rate increase amid doubts about the economic recovery.
"You have the geopolitical unrest and there are questions about the U.S. recovery," Alfonso Esparza, senior currency strategist at Oanda in Toronto, said of the factors behind the safe-haven bids for yen and Swiss franc.
The dollar fell 0.23 percent to 101.82 yen at the low of the month's trading range, while the euro fell to a four-month low against the yen earlier before recovering to 138.16 yen in U.S. trading.
Over the past week, Sunni Islamist fighters solidified their grip on northern Iraq in a bid to overturn the Shi'ite government.
On Monday, Russia cut off gas to Ukraine in a dispute over unpaid bills that could disrupt supplies to the rest of Europe.
The dollar and euro were also weaker against the Swiss franc, another safe-haven currency, trading at 0.8975 francs and 1.2179 francs respectively.
Rising oil prices due to geopolitical tension could hamper global growth and may curb U.S. central bankers from considering to raise interest rates too soon. [FED/DIARY]
Analysts anticipate Fed policymakers, who will meet on Tuesday and Wednesday, will tighten policy about a year from now. The dollar could fall if they signal they may wait longer to raise rates.
"The Fed may sound dovish and hint at a U.S. rate hike later than what the market expects. This may keep a lid on the dollar," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The dollar fell against most major currencies.
The euro rose 0.2 percent to $1.3569 higher than the four-month trough of $1.3503 earlier this month when the European Central Bank cut rates.
Sterling hit a peak of $1.7011, its highest since August 2009 before easing to $1.6978 in U.S. trading.
Comments from Bank of England Governor Mark Carney spurred bets the BoE may tighten policy before year-end. The pound rose further on remarks from BoE policymaker Charlie Bean, who said on Sunday he would welcome the bank's beginning to "normalise" rates.
The euro fell to as low as 79.59 pence, the lowest since October 2012 before bouncing up to 79.91 pence.
(Additional reporting by Anirban Nag in London; Editing by Larry King and Nick Zieminski)
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