The dollar staged a brecovery today as the likelihood of an imminent US strike against Iraq receded and media reports reignited caution over the health of Japan's banking system.
Sentiment for the dollar brightened after Baghdad accepted a UN resolution on weapons inspections, with safe-haven flows ebbing out of the Swiss franc and bolstering the greenback.
The yen faced pressure after the head of Japan's top business lobby ignited concerns that tough banking reform action could hurt the banking sector. Those concerns hit bank shares and helped drive the Nikkei 225 index to a 19-year low.
Although the dollar is likely to benefit from short-covering in the near term, sentiment remained poor due to uncertainty over the US economy, with the latest remarks by Fed chairman Mr Alan Greenspan failing to dispel concern.
Although the Fed has asserted risks for the US economy are balanced between inflation and slow growth, Mr Greenspan gave a glimmer of hope for further easing with a cautious outlook on recovery.
The market will gauge the health of the US economy from October retail sales figures out today.
The European Central Bank publishes its monthly report today and the market is on heightened alert for any clues the central bank may be lining up for a rate cut.