The dollar fell to a 5-1/2-month low against the euro and a two-month low against the yen on Wednesday as thin trading volume exaggerated the impact of souring views on the greenback.
Investors sold dollars overnight to pare risk within their portfolios ahead of holidays on Thursday in the United States and Japan. A softer-than-expected reading of US consumer sentiment in November added to the dollar's weakness.
"Dollar bears were all over the market, even ahead of the holidays," said Enrico Caruso, chief currency trader at Tempest Asset Management in Newport Beach, California. "The case for dollar weakness is mounting and today's report provided another incentive to sell."
The euro had surged to its highest since June 5, at $1.2957, within reach of the top of its 1-1/2-year trading range at $1.2980, according to Reuters data. In late afternoon trading in New York it traded around $1.2936. The dollar was down about 1 percent at 116.44 yen, near a two-month low. Its largest daily decline since late June.
The key level for many dealers is $1.30 in the euro, a level not touched since April 2005. While many dealers said this week's dollar weakness is the result of selling by short-term investors, a break of the $1.30 level could draw out long-term accounts such as institutional investors.
"The push now is for $1.30," said Caruso. "We might very well reach this level on Friday and if not, on Monday when volumes, and the bears, will return in full force."
Some market participants said so-called carry trades - where investors borrow in a low yielding currency such as the yen to buy a higher yielding one - were being unwound ahead of the US and Japanese holidays, the result perhaps of a pull-back in risk taking.
Indeed, the currencies that rose the most against the dollar on Wednesday were those that has the lowest yields among the most liquid currencies in the world: the yen, Swiss franc and Swedish crown.
The dollar fell 1.1 percent against the Swiss franc to 1.2266 francs, a 2-1/2-month low. Against the Swedish crown, the dollar dropped to the lowest since April 2005, at 7.0039 crowns.
Also while the New Zealand dollar - the highest yielding currency among the most liquid - was up about 0.2 percent against the dollar at $0.6710, it was down 0.8 percent against the yen, at 78.34 yen.
Amid the profit-taking in some carry trades, the US dollar has been targeted - especially since the Federal Reserve is keeping interest rates on hold - over what could be a four-day weekend for many in the market.