Many Japanese importers will have their last business day of the year on Wednesday. They needed the dollar for the year-end settlements of their businesses.
But the dollar will remain top-heavy due to lingering concerns over an eventual end of the zero interest rate policy in Japan and uncertainty over the prospect for the Chinese yuan.
Dollar selling, spurred by rising expectations that U.S. rate increases have peaked, remains intact.
Iran is a worrying issue that could trigger dollar selling.
The market had expected stronger inflationary pressures, so it was natural that players pared back some of their long dollar positions.
The dollar was a little affected by the talk but soon retreated.