The dollar bounced back against the euro and the yen today after South Korea said long-term plans to diversify its foreign exchange reserves did not mean it would sell the US currency.
The dollar's recovery gained momentum after a Japanese Finance Ministry official told reporters that Japan had no plans to diversify its foreign exchange reserves - the largest in the world at almost $850 billion - by buying euros.
Yesterday the dollar suffered its biggest one-day fall against major currencies since December as the market seized on reports South Korea's central bank planned to spread its $200 billion of reserves, the world's fourth largest, among a wider array of currencies.
The currency volatility prompted the Bank of Korea to clarify today that its reserve diversification plans were not new and did not mean the central bank would soon sell dollars for other currencies.
"The market has been trading on speculation, as opposed to hard facts," said Mr Shahab Jalinoos, senior currency strategist at ABN Amro.
"Yesterday's news hit the dollar but today's comments from South Korea are more opaque and the market has become more sanguine."
The euro dropped a third of a per cent from the US close to $1.3208 by early this morning, off earlier six-week highs of $1.3273.
The dollar rose two thirds of a percent against the yen to 104.71 yen, recovering from a 1.5 per cent slide yesterday.
The euro was also up over a third of a per cent against the Japanese currency at 138.60 yen after hitting a seven-week high above 138.80 yen.