The dollar fell to a 15-month low against the yen on Wednesday as investors packed into the safe-haven Japanese currency, backing away from earlier optimism that the Federal Reserve would continue to raise interest rates.
Investors perceived dovishness on the part of Federal Reserve Chair Janet Yellen, who testified before the House Financial Services Committee on Wednesday morning.
"By the end of her testimony, sentiment completely shifted," said Kathy Lien, managing director of BK Asset Management in New York. Because "at the end of the day, everyone realises the chances the Fed will be pulling the trigger next month have diminished significantly."
Yellen told members of Congress that she does not expect the central bank to reverse the rate-increase program it began in December but highlighted the risk of continued global financial volatility posed to the US economy.
"For the most part, dovish undertones of (Yellen's) testimony were enough to reinforce what the market had been thinking all along," Lien said, "which is that the Fed is probably not going to go through with a rate increase next month."
After initialing turning positive against the yen following the release of Yellen's remarks, the dollar reversed course, falling more than 1 percent and touching a session low of 113.74 against the yen. It was the lowest the dollar has fallen since November 5, 2014.
The dollar was last down 0.95 percent at 114.01 yen.
The Fed had indicated it would raise interest rates four times this year after increasing them in December for the first time in nearly a decade.
Increasing US interest rates would make the dollar a more attractive currency for investors. But as crude oil futures have fallen along with US stock prices, markets have grown increasingly wary of the likelihood the Fed will follow through on its forecast.
Fed funds futures rates show that markets see less than a 6 percent chance of a rate increase in March, according to CME Group's FedWatch tool, and only a 37 percent chance of interest rates going up this year.
After earlier turning up from Tuesday's drop to 3-1/2-month lows, the dollar index DXY, which measures the greenback against six major world currencies, turned flat at 96.101.
The dollar did rise against the euro, which fell 0.35 percent as worries over the European banking sector continued to weigh.
The euro also dropped 0.5 percent to a session low of $1.1161 following the release of Yellen's report. It was last down 0.3 percent to 1.1257.