The United States killed Major General Qassem Soleimani, commander of Iran's Islamic Revolution Guards Corps Quds Force, in an airstrike in Baghdad on Friday, escalating tensions in the region.
The dollar weakened immediately afterwards as investors flocked to traditional safe-haven currencies like Japanese yen and Swiss franc.
Better-than-expected U.S. non-manufacturing sector data also lifted the dollar.
U.S. non-manufacturing index rose to 55 percent in December from the November reading of 53.9 percent, according to the Institute for Supply Management on Tuesday. Numbers over 50 percent are viewed as positive for the economy.
The dollar index, which measures the greenback against six major peers, was up 0.35 percent at 97.0047 in late trading.
In late New York trading, the euro was down to 1.1145 U.S. dollars from 1.1190 dollars in the previous session, and the British pound was down to 1.3120 U.S. dollars from 1.3163 dollars in the previous session. The Australian dollar fell to 0.6869 U.S. dollar from 0.6933 dollar.
The U.S. dollar bought 108.52 Japanese yen, higher than 108.44 Japanese yen of the previous session. The U.S. dollar increased to 0.9708 Swiss franc from 0.9687 Swiss franc, and it increased to 1.3003 Canadian dollars from 1.2965 Canadian dollars.
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