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The dollar fell to a 16-month low on Thursday, with Asian currencies leading the charge higher after Singapore let its currency trade to a record high.
Analysts said the dollar was suffering from the perception that, in spite of an improving economy, the Federal Reserve was likely to stick to its ultra-loose monetary policy stance as other central banks raised rates.
The Monetary Authority of Singapore, which uses its currency as a monetary policy tool, said it would allow the Singapore dollar to strengthen in an attempt to ease inflationary pressures sparked in part by robust economic growth.
The Singapore dollar hit a record high of S$1.2461 against the dollar, before giving back some of its gains to stand up 0.8 per cent at S$1.2463 by late day in New York.
Analysts said that the prospect of emerging market central banks allowing gradual appreciation of their currencies against the dollar was likely to quicken its slide against other major currencies.
This, they said, was because it was likely to encourage investors to sell the dollar against emerging market currencies, which would lead emerging market central banks to build up dollar reserves as they intervened to smooth currency movements.
This in turn, could put pressure on the dollar against other major, liquid currencies, such as the euro and the Australian and Canadian dollars, as emerging market central banks diversified a proportion of their incoming reserves away from the US currency.
That diversification threat was highlighted after the People’s Bank of China announced that its foreign exchange reserves had grown to a record $3,050bn by the end of March.
The dollar index, which tracks the US unit’s progress against a basket of six major currencies, fell to a low of 74.617, its weakest level since November 2009.
The dollar also dropped 0.5 per cent to Y83.41 against the yen, fell 0.5 per cent to $1.6344 against the pound, lost 0.5 per cent to SFr0.8923 against the Swiss franc and eased 0.3 per cent to $1.4491 against the euro.