The dollar inched higher today, but was still on track for its biggest weekly drop in 24 years against a basket of currencies as investors feared the Federal Reserve's plans to buy longer-term government debt would undermine the value of the world's main reserve currency.
The euro reversed earlier gains, easing back from above $1.37 as investors booked profits on this week's sharp rally and some cited concerns about weaker euro zone members.
The dollar has fallen over 5 per cent against the basket of currencies this week, heading for its biggest weekly decline since 1985.
A fall of 5.2 per cent at the close later on Friday would also make this week's dollar plunge the biggest since 1973 when the Bretton Woods system of fixed exchange rates was finally abandoned.
"Although it's too early to say it's a turning point, the Fed's decision to go down the QE (quantitative easing) route may be the first step of things stabilising and finding a bottom. The recession will still be prolonged and deep but it's a step in the right direction," said Christian Lawrence, an FX strategist at RBC Capital Markets.
The dollar has tended to rise in recent weeks along with falls in global appetite for risk as investors retreated to US assets still seen as the safest bet as the global economy tanks.
But analysts said the Fed's decision to buy $300 billion of longer-term government debt and vastly expand its balance sheet beyond the current $2 trillion meant more and more of the US currency would be created, giving a huge boost to the supply of dollars.
The Fed's historic move also drove Treasury yields down by the most in 26 years, reducing the dollar's yield allure, while raising inflationary risks in the longer term.
The dollar index was up 0.2 per cent on the day at 83.281 having fallen as far as 82.631 yesterday, the lowest in two months.
The euro was 0.15 per cent lower at $1.3646, having climbed to a peak of $1.3737 yesterday, the highest since early January.
The common currency was up almost 6 per cent from last Friday's $1.2922 close, the biggest increase since its inception in 1999.
Reuters