The dollar fell to a two-month low against the euro and a three-week low versus the Swiss franc on Wednesday, rattled by expectations that US rate rises may soon end and news of an earthquake in the Gulf of California.
The currency extended losses made on Tuesday after minutes of the Federal Reserve's December 13 policy-setting meeting suggested that US rates were near a peak, following an 18-month rate-rising campaign.
A magnitude 6.7 earthquake hit the Gulf of California off the Mexican coast on Wednesday, the US Geological Survey website said, although it added there were no reports of damage.
The dollar fell in a knee-jerk reaction to early reports suggesting the earthquake had hit California.
"It has been a very, very bad start of the year for the dollar," said Kamal Sharma, currency strategist at Bank of America.
"The Fed has signalled there won't be too many more rate hikes, and that has been the major catalyst for the dollar move. We have also had a little bit of event risk this morning with the earthquake."
By 1255 GMT, the euro was up 0.7 percent against the dollar at $1.2099 after hitting its highest level since late October at $1.2111. The euro has rallied as much as two percent against the dollar in the past two days.
The dollar fell to a three-week low against the safe haven Swiss franc of 1.2808 francs.
It was down slightly at 115.94 yen, within striking distance of a two-month low below 115.50 yen.
The euro drew support from European Central Bank Governing Council member Vitor Constancio, who said the latest batch of economic data boosted optimism in eurozone growth prospects. However, the euro showed little reaction to a flash estimate of inflation in the eurozone which was in line with forecasts at a year-on-year rate of 2.2 percent in December, slightly down from 2.3 percent in November.
The dollar gained around 15 percent versus the euro and the yen last year as the raising of rates by the Fed at each of its policy meetings since June 2004 lured investors to dollar deposits and assets.
The Fed is widely expected to raise rates for a 14th straight meeting at the end of the month, taking its key rate to 4.5 percent.
But a recent raft of lukewarm US economic data has convinced many market participants that the central bank may think twice about raising rates beyond that, which could put the dollar under selling pressure.
The dollar has also lost support it gained towards the end of last year from a one-off tax break to US companies repatriating overseas profits, which expired at the end of December.
"The market went into the new year long dollar and the first piece of news we had was that US rates weren't going to continue going up. A lot of people have been caught out," said Jeremy Hodges, head of FX sales at Lloyds TSB.
Market forecasts are for the data to show 200,000 new jobs were created last month, compared with 215,000 in November. Some analysts were looking for as many as 250,000 new jobs, which they said could rescue the dollar from its New Year woes.