Dollar Sell-off Accelerates On Heightened U.S.-Iran Tensions

The U.S. dollar began the week on the back foot as geopolitical tensions between Iran and the U.S. flared up after Iran vowed to retaliate against Suleimani's death, and Donald Trump threatened to strike back in a disproportionate manner.

Tensions escalated over the weekend after Iran vowed to retaliate against U.S air strike last week and said that it will not abide by the uranium enrichment limits under the 2015 nuclear deal.

Trump also threatened sanctions against Iraq after its parliament called on U.S. forces to leave the country, amid a growing backlash over the U.S. killing of a top Iranian military commander.

He said that the United States will strike back in a disproportionate manner, if Iran strikes any U.S. person or target.

Global markets fell, while safe-haven assets such as gold and the yen climbed on concerns that Middle East tensions will hurt growth.

On the economic front, the IHS Markit will release the U.S. services PMI for December later in the day.

The currency showed mixed trading against its major counterparts in the Asian session. While it fell against the yen and the pound, it held steady against the franc and the euro.

The greenback declined to a 4-day low of 0.9684 against the franc from last week's closing value of 0.9722. The next possible support for the greenback is seen around the 0.95 mark.

The greenback weakened to 4-day lows of 1.1206 against the euro and 1.3175 against the pound, reversing from its early highs of 1.1157 and 1.3064, respectively. The greenback is likely to face support around 1.14 against the euro and 1.34 against the pound.

Pulling away from an early high of 1.2990 against the loonie, the greenback edged lower to 1.2964. If the currency drops further, it may challenge support around the 1.28 level.

The greenback came off from an early high of 0.6644 against the kiwi and fell to 0.6680. The greenback is seen finding support around the 0.68 level.

The U.S. currency was trading at 0.6947 a aussie, following an advance to 0.6932 in the previous session. The greenback is poised to find support around the 0.71 level.

In contrast, the greenback was trading at 108.11 versus the yen, after falling to 107.77 in the previous session, which was its weakest since October 10. The pair had ended last week's deals at 108.08.

The latest survey from Nikkei showed that Japan's manufacturing sector continued to contract in December, and at a faster rate, with a manufacturing PMI score of 48.4.

That's down from 48.9 in November and it moves further beneath the boom-or-bust line of 50 that separates expansion from contraction.

Looking ahead, Markit's U.S. final services PMI for December is set for release in the New York session.