The dollar held almost a cent above its record low against the euro today, winning a respite after heavy selling as ECB officials warned about a strong euro and investors grew wary ahead of US trade data.
Weak confidence figures from Germany underscored concerns about the impact of the dollar's decline on the European economy, briefly hurting the euro.
However, analysts said the broad dollar downtrend remained intact even after ECB president Mr Jean-Claude Trichet said recent currency moves were unwelcome.
Worries over the US current account and budget deficits have put heavy pressure on the dollar, which hit a nine-year low against a basket of currencies today.
At 1 p.m. the dollar traded steady on the day at $1.2912, compared with yesterday's record low of $1.2985 which followed a five-per cent euro/dollar rise over the last month.
Following Mr Trichet's comments , ECB Governing council member Mr Guy Quaden told a Belgian newspaper that further appreciation of the euro versus the dollar would be undesirable. German Economy Minister Wolfgang Clement also said he believed the ECB would take action on the euro's exchange rate if it believed this were necessary.
"Trichet's comments yesterday have made the market wary of pushing the euro higher," said Mr David Mann, foreign exchange strategist at Standard Chartered.
"But the market is still focused on the structural negatives for the dollar and tomorrow's trade data will be important."
Meanwhile, Germany's ZEW said the strong euro was already hurting confidence.
"The reasons for the clear increase in pessimism are to be found in the expected cooling of the global economy and the recent strong increase in the value of the euro, which will likely hurt German exporters," ZEW said.
The Federal Reserve meets tomorrow and is widely expected to raise US interest rates by a quarter-point to 2 per cent. Analysts said the dollar could win a reprieve if the central bank indicates it is planning another rate hike in December as this could attract more capital into the United States.
US trade data, due on Wednesday, will nevertheless keep the market focused on the structural imbalances in the US economy. Analysts expect the US trade deficit to have narrowed slightly in September, thanks largely to a weaker dollar. But any improvement from August's $54.04 billion trade shortfall may be hampered by the impact of more costly oil imports.