The dollar fell 1 per cent against the euro and yen today as growing concerns that central banks were diversifying their reserves out of US dollar assets pushed the US currency through key technical levels.
South Korea's central bank said yesterday it planned to diversify its currency reserves, which are the world's fourth-largest, into a greater variety of currencies. Reserves have traditionally been held in US Treasuries.
Bahrain's central bank governor said today he saw a growing role for the euro in international reserves as Europe's economy starts to grow and capture a bigger part of world trade.
He added however the bank was in a no hurry to diversify away from the falling dollar.
"South Korea's news moved the market today as central banks of both South Korea and Taiwan withdrew their bids for the dollar this morning in Asia and that caused the dollar/yen to go lower," said Mr Mansoor Mohi-Uddin, chief currency strategist at UBS.
"Various comments add to the whole sentiment central banks from Asia and Middle East are buying euros."
Earlier the euro was up nearly 1 per cent at $1.3180, having hit a five-week high of $1.3189 earlier after a break of key technical level at $1.31 earlier.
The dollar was down over 1 per cent against the yen at 104.40. The Korean won hit a seven-year closing high while the Taiwan dollar ended at a four-year peak against the US dollar.
The dollar hit a 22-year low against the New Zealand dollar near US$0.73 as investors were lured into the higher-yielding kiwi currency.