The dollar fell 2 per cent against the euro, gave up three yen and hit seven-month lows against sterling and the Swiss franc yesterday after airplane attacks destroyed both towers of the World Trade Center in New York and damaged the Pentagon near Washington.
"This is bad for the dollar," said Mr Bernard Tsui, vice-president and forex adviser at Union Bank of California in Los Angeles. The series of events sent the dollar spiralling lower in panic selling in thin markets, and raised concern about investors' confidence in US assets.
"The knee-jerk reaction to the blasts has been to sell the dollar ... I would expect further gains in the near term. Key to how much the dollar suffers is whether this will affect foreign investor confidence in US assets," said Mr Ian Stannard at BNP Paribas in London.
In thin, nervous midday dealings, the currency was pinned to session lows near 91.70 US cents against the euro, down more than 1.9 per cent from the previous US close.
Against the Swiss franc, the currency fell to seven-month lows below SFr1.64, but steadied around SFr1.6420 in midday trade, down over 2.9 per cent from the previous New York close.
The dollar came close to three-month lows against Japan's currency, around 118.55 yen, but steadied near 119 yen - off a full three yen below four-week peaks hit overnight against the Japanese currency on concerns about the Far Eastern country's economy.
Sterling also benefited, hovering at a six-month high above $1.47, up 1.1 per cent on the session. New York stock and commodity exchanges were shut down indefinitely. Trading in US Treasury bonds was halted and activity was light in foreign exchange markets.
"(It's) just panic buying. Obviously, a lot of market players are downtown, so there is not much liquidity, said Mr Hugh Walsh, trader at Fortis USA in midtown New York.
