The dollar hit multi-month lows against major currencies on Tuesday, hit by signs of mounting concern among U.S. policymakers about the pace of economic recovery, as technical factors kept the currency under selling pressure.
The dollar index, a measure of its value against a currency basket, fell to 80.470, 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 $1.3261 according to Reuters data, while the dollar fell to 85.73 yen, its weakest since November 2009.
Negative sentiment for the U.S. currency grew 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 of 0.534 percent.
The jury is still out on the U.S. recovery in Q2, Q3 and Q4, but the market is taking the more pessimistic view, said Kenneth Broux, market strategist at Lloyds TSB.
The greenback has slid over the past month after a run of disappointing U.S. data fueled expectations that U.S. growth could lose momentum as official stimulus is withdrawn.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.
By 1102 GMT (7:02 a.m. EDT), the dollar index .DXY traded at 80.481, down 0.6 percent on the day, after breaking below its 200-day moving average at 80.722.
Analysts said the break of the 200-day mark would be the trigger for momentum funds to sell dollars.
The euro traded 0.5 percent higher at $1.3244, with traders highlighting options expiring at $1.3250 at 1400 GMT on Tuesday and Wednesday, while the U.S. currency was 0.8 percent lower at 85.79 yen.
Japanese Finance Minister Yoshihiko Noda said on Tuesday that excessive, disorderly moves in the foreign exchange market were undesirable and that too strong a yen hurts exports and households, while Prime Minister Naoto Kan said he was carefully watching economic moves.
AUSSIE TRIMS LOSSES
Technical analysts said the euro's break above the 38.2 percent retracement of its decline from November to June at $1.3125 on Monday was adding to upward momentum. The 50 percent retracement was now a technical target at $1.3510.
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, adding he saw a climb to $1.33 in the near term.
The Australian dollar traded at $0.9117, 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.
(Additional reporting by Neal Armstrong, Editing by Andrew Heavens, John Stonestreet)