The dollar recovered some of yesterday's heavy losses against major currencies today, boosted by a small remission for US share prices, and by wariness of more yen-selling intervention from Japan.
But analysts said the US currency remained under pressure due to ongoing anxiety about the performance of US equities.
US stocks ended flat to higher yesterday after initial losses due to the WorldCom accounting scandal, and stock index futures were indicating a stronger open.
The euro was trading at $0.9843/46 early this morning, up a third of a per cent from the US close but a cent below 28-month highs scaled yesterday.
The dollar was trading at 119.63/69 yen, down a third of a per cent from the close, after three rounds of intervention by Japan failed to stop its fall to nine-month lows below 119 yesterday.
The US Federal Reserve left its federal funds rate unchanged at 1.75 per cent today, as widely expected. Some dealers said the dollar took comfort from White House spokesman Mr Ari Fleischer's statement late yesterday that the United States continued to endorse a strong-dollar policy.
His comments came after President George W. Bush had said on Tuesday the dollar would seek its level based on market forces.
The fate of the dollar has been closely intertwined with that of US equities in recent months, as accounting scandals and profit warnings have dented investors' enthusiasm for US assets.
The health of Wall Street is regarded as vital for the United States to attract foreign capital to finance its huge current account deficit. Without such inflows of funds, the dollar could face a sharp depreciation, dealers said.
"The dollar is totally dependent on US stocks," said Mr Seiya Nakajima, an economist at Japanese trading house Itochu Corp in Tokyo.
"If US stocks stabilise, so will the dollar." Threats of Japanese intervention also partly helped the dollar stabilise against the yen, after Japanese authorities intervened on six days in the past few weeks to curb the currency's export-harming strength.
But dealers also said the dollar remained susceptible to further falls in the US share market, a possible flare-up in the Middle East and threats of fresh terror attacks.