The dollar fell to a two-week low against the euro on Tuesday and the yen rose as investors pared risky trades amid worries about the banking sector, fuelled by reports of further writedowns by major banks.
But higher-yielding currencies climbed led by the Australian dollar after minutes from the central bank's February policy meeting cemented expectations for more interest rate hikes - moves that would boost the currency's yield appeal.
Keeping investors cautious, Credit Suisse said it has written $2.85 billion off the value of its asset-backed investments, while a Financial Times report said that US banks have been quietly borrowing "massive amounts" from the US Federal Reserve in recent weeks.
"There is a little bit of credit concern creeping back with the Credit Suisse revelation and the market is sensitive to that sort of issue," said Steve Barrow, currency strategist at Bear Stearns.
"Yet at the same time, and whilst the yen has got a bit stronger, some of the riskier currencies haven't suffered that much. If you look at the Aussie, that's continued to do well after what we saw from the Reserve Bank (of Australia)."
At 1131 GMT, the dollar was down 0.3 percent against a basket of major currencies at 75.845 around two-week lows. Versus the yen, it slid 0.8 percent to 107.32 yen.
The euro rose half a percent to two-week highs of $1.4750, but was also weaker against the Japanese currency, slipping 0.3 percent to 158.18 yen, well off a three-week high near 159 yen set earlier.
The Japanese currency was also benefiting from talk of a Chinese interest rate hike after data on Tuesday showed a surge in China's consumer inflation to an 11-year high.
"With China now Japan's largest export market, a rise in the yuan would increase the value of Japan's earnings in the region helping to underpin the yen," said Boris Schlossberg, senior strategist at FXCM. Among the best major performers was still the Aussie dollar, which rose as high as $0.9229, levels last seen in early November.
Minutes from the Reserve Bank of Australia's (RBA) February 5 policy meeting showed the central bank had debated a more aggressive 50 basis point rate hike. While the RBA decided in the end on a more modest 25 basis point rise in the cash rate to an 11-year high of 7 percent, the minutes pointed strongly to further monetary tightening ahead.
The New Zealand dollar rode on the coattails of the Aussie's rally, climbing 0.6 percent to $0.8010 - its highest since July. In contrast to the RBA, the Federal Reserve has slashed benchmark interest rates to 3 percent from 5.25 since September, with investors expecting another rate cut next month as the US economy continues to show signs of weakness. Investors are currently awaiting the NAHB/Wells Fargo Housing Market index due at 1800 GMT.
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