The dollar surged higher against the euro today to push it back below parity and leaving dealers wondering whether the greenback's decline had ended.
The dollar had risen 2 per cent on the day against the euro to $0.9860 by 9.45 a.m. and 1 per cent to 117.73 yen.
"The market is having a reality check. Everyone's been selling the dollar for a while but they're now asking -'Shouldn't I be careful what I am selling it against?'" said Ms Sonja Marten, currency strategist at Dresdner Kleinwort Wasserstein in Frankfurt.
The Dow Jones industrial average fell 3 per cent yesterday to its first close below 8,000 since October 1998, just after the Russian financial crisis and the collapse of the hedge fund Long Term Capital Management.
But the dollar, which has closely followed the US stock market down in recent months, went the other way today, puzzling dealers and analysts used to watching the greenback mirror the Dow.
Some dealers noted that European and Asian stock markets are hardly immune from the Wall Street fallout. Before Tuesday's bounce in European stocks, leading shares in Europe had slumped by almost 5 per cent in two successive trading sessions.
Dealers said there were also rumours that US investment banks were squaring off positions against the Australian and Canadian dollars to secure cash to make up losses from WorldCom, which filed for bankruptcy protection on Sunday.
But many analysts were doubtful about the repatriation story and said the market had just got itself too short of dollars which left little scope for further selling at the moment.