A planned vote on legislation to repeal and replace the Affordable Care Act was pulled on Friday night after it became apparent that it didn't have enough support from Republicans.
"Investors are viewing this setback as a broader loss of faith in the Trump administration's ability to deliver on other campaign pledges - namely tax and spending policies, which have underpinned asset prices since the USA elections", said ING currency strategist Viraj Patel, in London.
The dollar index had risen to a 14-year high near 104.00 in early January when expectations for inflation-boosting stimulus under the Trump presidency were at their peak, with investors betting big on the so-called "Trumpflation" trade.
So-called "Trumpflation trades" - betting on an extended recovery in the U.S. and global economies and related assets such as commodities - came under heavy selling pressure.
The dollar index slipped below 99.0, its lowest since November 11, two days after the results of the presidential vote. USA gold futures for April delivery were up $9.30 an ounce at $1,257.80.
Silver was up 1.1 percent at $17.91 an ounce, off an earlier three-week high of $17.959, while platinum was 1.7 percent higher at $976.95.
"Commodity prices all got hit overnight - that's why we've underperformed", said Tim Kelleher, head of institutional foreign exchange at ASB Bank.
The fall in risk appetite dominated European stockmarkets, with the pan-European STOXX 600 index - which has risen around 10 percent since Trump was elected - falling around half a percent on the day.
The dollar fell to a near two-month low against a basket of currencies and its index was down 0.3 percent at 99.287, its lowest since February 2. On the gold front, the metal rallied following President Donald Trump's failure to push through a healthcare reform package on Friday.
Traders said the market was divided on what the failure of Trump's healthcare bill meant for the outlook for U.S. tax cuts and infrastructure spending.
Safe-haven gold perked up, rising one percent to $1,257 an ounce.
That knocked the dollar to a four-month low versus a currency basket and drove a drop in stock markets, with European indices sliding almost 1 percent in early trade and USA stock index futures hitting six-week lows. The Swiss franc, another traditional safe haven for capital, touched a 4-1/2-month high. USA crude was down 33 cents, or 0.69 percent, at $47.64 per barrel.
The New Zealand dollar was little changed, having reached the highest in nearly a week overnight, as a decline in commodity prices and equities offset the effects of waning sentiment for the USA dollar.
Meanwhile, oil fell further towards $50 a barrel, pressured by uncertainty over whether an OPEC-led production cut will be extended beyond June in an effort to counter a glut of crude.