The dollar hit multi-month lows against major currencies on Tuesday, stung by speculation that U.S. interest rates will stay low, while technical factors kept the currency under selling pressure.
The dollar index, a measure of its value against a currency basket, fell to 80.587, its weakest since mid-April and marking its first break since January below its 200-day moving average, a move that analysts said would open the door to more losses.
The euro hit a six-month high of $1.3230 according to Reuters data, while the dollar fell to 85.86 yen, its weakest since November 2009.
The U.S. currency struggled after Federal Reserve Chairman Ben Bernanke said on Monday that the economy has yet to recover fully and monetary policy must remain accommodative.
Also stinging the dollar was the two-year U.S. Treasury yield's drop to a record low 0.534 percent -- a faster fall than its euro zone counterpart's, further weakening investor demand for short-term U.S. debt.
Technical analysts said the euro's break above a Fibonacci retracement level against the dollar on Monday was adding to the common currency's upward momentum.
Technically, we've broken levels that should have held if we were to be trending south in euro/dollar, said Dag Muller, technical strategist at SEB in Stockholm.
The euro's break was through $1.3125, the 38.2 percent retracement of its decline from November to June. Muller saw a climb to $1.33 in the near term.
Euro zone problems have been put on the back burner while U.S. problems have come to the fore, he added. Overall, the dollar is on the retreat and there is nothing in the near term to stop it.
By 0812 GMT, the dollar index .DXY traded at 80.653, down 0.3 percent on the day, after breaking below its 200-day moving average at around 80.722 according to Reuters data.
The euro EUR= traded 0.3 percent higher at $1.3220, while the U.S. currency traded 0.5 percent lower at 86.03 yen.
AUSSIE TRIMS LOSSES
The greenback has slid over the past month after a run of disappointing U.S. data fuelled expectations that U.S. growth could lose momentum as official stimulus is withdrawn.
The Wall Street Journal on Tuesday reported that given signs the economy is losing momentum, Fed officials will mull whether to use cash the central bank receives from maturing mortgage bond holdings to buy new mortgage or Treasury bonds, rather than allowing its portfolio to shrink gradually.
The Australian dollar AUD=D4 traded at $0.9112, down 0.2 percent on the day but trimming losses made after retail sales and building approvals data in Australia disappointed bulls.
The RBA held its benchmark interest rate at 4.5 percent, as widely expected, and some traders covered Aussie shorts following a lack of negative surprises in the RBA's statement, which said policy was appropriate given moderating inflation and uncertainty about the global outlook. (Editing by Ruth Pitchford)