The dollar slid over 1 per cent to fresh multi-month lows against the euro, Swiss franc and yen today as a warning on the dollar's vulnerability from the IMF intensified its downward momentum.
Bearish dollar sentiment has been building for days and dealers said the dollar's break of key chart levels at 121 yen and $0.91 per euro accelerated its fall.
In its latest annual assessment of the US economy yesterday, the IMF said the outlook was uncertain. It also warned that the unsustainability of the yawning US current account deficit raised the risk of a sharp depreciation in the US currency.
Dealers said markets were particularly nervous ahead of a CNBC broadcast by US Treasury Secretary Mr Paul O'Neill, due at 7 p.m. amid speculation he may say something to temper the strong dollar policy.
These jitters were compounded by the impending release of US industrial production data, which are expected to show a 10th straight month of contraction.
Dealers said US banks were among the biggest sellers, with thin trading conditions due to a holiday in much of Europe exaggerating price moves.
Analysts noted that - with the United States needing more than $1 billion of foreign money a day simply to fund its current account deficit - even a modest slackening in overseas demand for US stocks and bonds could risk a destabilising dollar slide.
The dollar has been under pressure since last week after the Federal Reserve's Beige Book suggested weakness in US manufacturing was spreading to the consumer sector, fuelling speculation the US administration may relax its strong dollar policy.