The U.S. dollar weakened against all major currencies as investors increased bets on Federal Reserve interest rate cuts following new signs of economic softness in the United States.

The Bloomberg Dollar Index fell for a fourth consecutive session. Asian investors are evaluating how Tuesday's weaker-than-expected retail sales data might support the case for further Fed easing. Furthermore, growing investor caution ahead of Wednesday's U.S. non-farm payrolls report and Friday's inflation data has provided additional justification for reducing dollar holdings.

"Relative interest rate narratives are back in focus, with soft U.S. economic data prompting markets to price in increased chances of further Fed rate cuts," said David Forrester, a strategist at Credit Agricole CIB in Singapore.

Data from the U.S. Commerce Department released on Tuesday showed retail sales unexpectedly stalled in December, indicating that consumer support for economic growth weakened at the year's end.

The Australian dollar led gains among major currencies against the greenback. The advance followed comments from Reserve Bank of Australia Deputy Governor Andrew Hauser, who stated inflation remains "too high," paving the way for potential further rate hikes. The Japanese yen rose for a third consecutive day, buoyed by Prime Minister Sanae Takaichi's weekend election victory.

"The yen remains one of the most sensitive G-10 currencies to relative interest rates, and with the long end of the JGB yield curve performing well after the general election, it's given the yen an extra boost," Forrester added.

A Bloomberg survey of economists suggests U.S. employers likely added 65,000 workers in January, which would be the largest jobs growth in four months.

"Tonight's non-farm payrolls data, and the subsequent CPI release, are crucial for determining whether interest rate divergence will persist," said Calvin Yeoh, a portfolio manager at Singapore-based hedge fund Blue Edge Advisors Pte, who expressed a bullish view on the yen.