The dollar fell across the board today as investors grew jittery ahead of a US interest rate decision later today that market had overdone expectations of aggressive US rate increases later this year.
Most economists expect the US Federal Reserve to leave rates at a 46-year low of 1 per cent in an announcement at 6:15 P.M. Irish time following a policy meeting.
However, they think it will indicate higher borrowing costs will soon be needed to curb inflationary pressure in the fast-growing US economy.
With the market already pricing in several dollar-supportive US rate rises before the end of the year, dealers said the risks to the greenback were now on the downside.
At the end of last month, Fed chairman Mr Alan Greenspan said interest rates would have to rise at some point but he also sounded calm on inflation, suggesting no imminent move.
Strong US data in recent weeks, including an improvement in the jobs market in Monday's ISM manufacturing survey, have raised expectations the Fed might change the tone of its statement to prepare for a rate increase.
Much hangs on the next couple of payroll reports which could show whether hiring has picked up to a more robust pace.
The April labour report is due on Friday. A rise of more than 170,000 jobs is expected in payrolls, which, coming after March's 308,000 jump, would add to expectations for a US rate rise.
The dollar's fall today came after supportive news for the US currency on Monday from the US government's budget situation.
The US Treasury Department slashed its estimated borrowing for the current quarter in half and said it had borrowed far less than expected in the first three months of 2004.