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The yen and the Swiss franc strengthened on Wednesday after Pakistan shot down two Indian jets, sending investors out of riskier markets into safer havens.
The Japanese currency rose to a one-week high of 110.38 per dollar after Pakistan downed the jets a day after Indian warplanes struck inside Pakistan for the first time since a war in 1971.
“So far market reaction in major currencies has been relatively limited as tensions between the two countries had already been high. Focus is on whether the conflict shows signs of escalating,” said Kyosuke Suzuki, director at Societe Generale in Tokyo.
Elsewhere, investors watched sterling closely as it headed towards a four-month high of $1.3288.
The pound rallied on Tuesday after British Prime Minister Theresa May offered lawmakers the chance to vote on delaying Brexit, opening up the possibility of avoiding a chaotic no-deal departure from the European Union.
The dollar remained near a three-week low after shedding 0.4 per cent overnight on comments from Federal Reserve Chairman Jerome Powell about the central bank's shift to a more “patient” policy approach.
The dollar index against a basket of six major currencies was flat at 96.
“As long as the Fed sticks to its neutral approach there is no monetary policy momentum which would allow EUR-USD to escape from the tedious sideways trade of the past months,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.
Investors are keeping an eye on the US-North Korean summit, which begins in Hanoi later on Wednesday.
The euro was down a tad at $1.1376 after hitting a three-week high of $1.1402 overnight.
Traders said they would be watching a euro zone business climate survey due out at 1000 GMT for signs of any recovery in the bloc's recent economic stagnation.
The euro/dollar exchange rate has been helped by a stronger pound recently, but will struggle to break above $1.1400, said Chris Tuner, head of currency strategy at ING.
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