The euro and the Japanese yen gained in thin trading on Monday as concerns about a partial US government shutdown weighed on investor sentiment and the dollar, although Chinese plans to cut tariffs on a range of goods helped to lift the mood.

Trading volumes were thinning out with most global markets set to shut for Christmas, while Japan was closed on Monday for a holiday. After a bruising few weeks in which worries about spluttering global growth have knocked markets lower, investors were reluctant to take on many new risks at the end of the year.

A less dovish than expected Federal Reserve meeting also heightened fears the US central bank will be raising interest rates into a weakening US economy. A partial US government shutdown, which could continue to January 3, when the new Congress convenes and Democrats take over the House of Representatives, has also contributed to the souring of risk sentiment.

The Japanese yen, perceived as a safe place to put money in times of uncertainty, rose 0.3 per cent against the dollar to 110.81, bringing its gains in the last six days to 2.5 per cent. The euro rose 0.2 per cent and last fetched $1.1398.

Against a basket of its rivals, the dollar slipped 0.2 per cent to 96.72. “The global equity market rout has been driving sentiment in the currency markets. I don't see any significant rebound in risk sentiment yet,” said Stephen Innes, head of Asia trading, Oanda.

The Swiss franc, another currency viewed as a safe-haven, rose 0.2 per cent versus the dollar but was down against a broadly stronger euro. There was some improvement in the mood, however, after China unveiled plans to remove import and export tariffs in 2019 on a range of goods, soothing fears about an ongoing trade dispute between Chin and the United States. “We are seeing some positive developments. “We are seeing the Aussie dollar doing a little bit better,” said Alvin Tan, an FX strategist at Societe Generale.

China's offshore yuan rose 0.3 per cent to 6.9055. The Australian dollar rose half a percent to $0.7067. The Aussie is very sensitive to Chinese economic developments given China is the country's largest trade partner.

Sterling rose 0.3 per cent versus the dollar to $1.2671 , although Tan at Societe Generale noted the recent recovery in the pound was more to do with dollar weakness than more positive sentiment towards the British currency.

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