The dollar dropped rapidly against its major trading partners yesterday, losing over 1 1/2 cents against the euro in a few minutes and falling sharply against the pound and the yen.

By the time the dollar's descent ran out of steam, the euro had risen to about 1.03 against the dollar, its highest level since the end of June.

Some analysts said the euro's rapid rise in the middle of the New York trading session could initiate a shift in sentiment in favour of the new currency, which has fallen by almost 15 per cent since its arrival in January.

Most ruled out direct intervention in the foreign exchange market by the European Central Bank, with some saying the ECB was also puzzled over the dollar's fall against the euro.

The ECB refused to comment.

Mr Marc Chandler, chief currency strategist at Mellon Bank in New York, said the most likely explanation for the market movement was the failure of the Bank of Japan to intervene as usual to weaken the yen against the dollar.

The Japanese currency started appreciating in London trading yesterday, moving through levels which recently have invoked the Japanese central bank to sell yen to halt the currency's rise.