The dollar shed one per cent against the euro and Swiss franc today as doubts emerged over whether the previous day's aggressive cut in US interest rates would help the frail US economy.
The Federal Reserve delivered its 10th rate cut of the year, lowering its key rate half a point to a 40-year low. But with worries creeping in over how much more the Fed can do to boost growth, the dollar reversed its post-rate cut gains and fell to 2-1/2 week lows versus the yen.
Europe's single currency outshone its counterparts, rallying more than half a percent against the yen, helped by talk that China may be set to increase its euro reserves by 10 per cent. Chinese authorities declined to comment on the matter.
The initial knee-jerk reaction to the Fed's rate cut was positive for stocks and the dollar, but you have to start wondering when all this stimulus will help the economy and this is one of the reasons why the dollar has come under broad pressure today." said Mr Paul Mackel, currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt. The euro gave little immediate reaction to data showing that German September industry orders fell 4.1 per cent, a much steeper fall than analysts' forecasts of a 2.2 per cent decline.
Dealers said the interest rate differential between the US and the euro zone could begin to work against the greenback.
"The Fed's decision is weighing on the market and dealers can't help but feel the US is moving towards the situation that Japan finds itself in," said Mr Steve Barrow, currency strategist at Bear Stearns.
"There's also a feeling that the Fed can't continue to cut rates and not have a weak currency," he added.
US equity futures suggested the likelihood of a rocky start at the US open today, further souring sentiment towards the dollar.
"The weakness of the stocks reflects worries about the global economy, or more precisely, the US economy. It suggests that the 50 basis point cut was not really inspirational for confidence. This is hitting the dollar too," said one trader.