The dollar dipped on Monday on the run-in to Wednesday's decision on US interest rates, while Britains pound was back under pressure after an almost 2-cent fall following elections that threw Europes second-largest economy into political chaos.

The week was set to be dominated by a series of central bank meetings and UK Prime Minister Theresa May's efforts to form a workable administration after losing her majority on Friday.

With a fourth rise in US rates in 18 months now fully priced-in for Wednesday, Bank of America Merrill Lynch's head of G10 currency strategy, Athanasios Vamvakidis, pointed to the chance of a weaker greenback after the meeting.

But he also warned that the Bank of Japan a day later might spark some more retracement of the yen's 4-per cent gain since mid-May.

“The hike by the Fed is fully priced but the language will be dovish,” Vamvakidis said.

“What will be interesting will be the BOJ - there have been headlines that the BOJ has been discussing an exit from emergency stimulus. They may well want to bite back against that (and) the yen has come a long way in the past few weeks.”

The dollar was marginally lower at 110.21 yen, having retreated from Friday's one-week high of 110.815 yen. Against the euro it dipped a quarter percent to $1.1222, compared to a seven-month low of $1.1285 set in early June.

As May scrambles to pick up the pieces and reunite her Conservative Party before Brexit negotiations due to start next week, the economic signs for the pound continue to worsen.

Figures from credit card firm Visa showed British consumers cut their spending for the first time in nearly four years last month, as households turned more cautious even before the shock election result.

Against that is the hope of a softer approach to the Brexit talks that Friday's election results have engendered in markets.

Worries that the process would take Britain out of the lucrative European single market have left the pound around 20 cents weaker than when Britain voted to leave the European Union a year ago.

“Based on parliament as it stands, Theresa May would be able to approve a soft Brexit but not a hard one,” said Vamvakidis.

Sterling last traded at $1.2726, down 0.1 per cent on the day, after sliding 1.7 per cent on Friday, its biggest one-day drop in around eight months.

“The political risks are mounting,” said Kathleen Brooks, head of research with City Index in London.

“A potential rethink on the UK governments Brexit stance could limit downside for the pound, at least for now. However, not even the rising odds of a soft Brexit have been enough to spark positive momentum.”

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