"Concerns towards trade conflict stemming from USA tariffs continue to linger in the background, capping risk appetite, pushing Treasury yields lower which in turn weighing on the dollar", said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
Tillerson's firing and Pompeo's appointment as his replacement, coming a week after the resignation of USA economic adviser Gary Cohn, also weighed on the dollar.
"Today's CPI inflation data is likely to add further colour to the U.S. inflation picture, however it probably won't add any further clarity to the overall inflation outlook puzzle, given that the Fed doesn't use CPI as its inflation benchmark", said Michael Hewson, chief markets analyst at CMC Markets in London. Instead, the Fed uses the personal consumption expenditure (PCE) index.
The pan-European STOXX 600 .STOXX was last down 0.2 percent. Italian and Spanish stocks rose 0.3 to 0.4 per cent, while Britain's FTSE was a laggard, down 0.1 per cent.
But a mixed performance by USA shares overnight tempered the rally.
Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.2 per cent after spending much of the day swerving in and out of negative territory. Appetite for risk assets was boosted at the end of last week as U.S. President Donald Trump accepted an invitation to meet North Korean leader Kim Jong Un and the narrower-than-expected tariff plan from the White House eased speculation of a trade war.
The U.S. currency was up 0.3 percent at 106.740 yen JPY=, trimming some losses after a suspected cover-up of a cronyism scandal put Japanese Premier Shinzo Abe and his close ally, Finance Minister Taro Aso, under fresh pressure. It also lost ground to the euro.
Morgan Stanley strategists said a further deterioration in Abe's political situation might see the yen "forcefully return towards its previous upward trend".
The announcement saw the dollar index, which measures the greenback against six other top world currencies, fall to a three-day low .DXY and meant the S&P 500 opened more subdued than traders had earlier expected.
"The broader story remains that of USA monetary policy normalization in the backdrop of an improving economy and a further decline in currency market volatility would only fuel more risk taking appetite", said Commerzbank's FX strategist Thu Lan Nguyen. The Australian dollar recovered from three-month lows and the euro gained almost 2 percent in the last 10 trading sessions against the Swiss franc.
In commodities, crude oil prices extended losses after sliding the previous day amid ongoing concerns over rising USA output.
The euro was little changed at $1.2329 EUR= after gaining 0.25 percent overnight.
US crude futures were up 0.2 per cent to $61.51 per barrel.
The dollar rose to a two-week high and was up 0.7 percent on the day at 107.28 yen, its biggest single-day rise since late October.