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NEW YORK: The US dollar traded mainly lower against other currencies on Tuesday as investors moved away from the safety of the greenback amid a stepped-up effort by world governments to rescue the banking sector.
The euro climbed to 1.3618 dollars at 2100 GMT from 1.3576 dollars in New York late on Monday.
Against the Japanese currency, the dollar firmed slightly to 102.07 yen from 102.01 yen on Tuesday.
Financial markets appeared to calm with credit markets thawing somewhat after US authorities pushed forward a massive financial rescue with a plan to inject up to 250 billion dollars in capital to struggling banks and offer new guarantees to help restore credit flows.
Peter Cohan, a consultant with Peter Cohan Associates, said the fact that shell-shocked investors are coming out of their shells may push the dollar down.
"Based on the decline in two key measures of business risk, it appears that the actions of global financial leaders is beginning to thaw out the frozen credit markets," he said.
"This improvement means that the dollar will drop as investors take their money out of US Treasury bills to buy stocks. It also means that the price of oil will rise - since a weaker dollar means it takes more of them to buy a barrel of oil."
"The stabilisation in financial markets should continue to weigh upon the dollar and yen, which were the main beneficiaries from the turbulence over the past few weeks," said Barclays Capital analyst David Woo.
In recent weeks, the dollar had strengthened as investors sought shelter in what is seen as a relatively "safe" currency amid a stock market collapse and fears of economic meltdown.
The yen meanwhile had found support on the view that Japan would remain relatively untouched by the credit crunch and as investors unwound risky so-called carry trade.
Carry trade is when investors borrow in a country with low interest rates such as Japan before investing in higher yielding countries with higher interest rates.
It entails selling the currency from the first country and buying from the second.
Sterling jumped against the US unit after news that British 12-month inflation surged to a 16-year high of 5.2 percent in September due to soaring energy bills.
However, analysts expect inflation to plunge in the coming months as economic growth cools.
Currency markets also appeared to brush off gloomy economic forecasts from Germany, which surveys said was headed for recession, and a dip in industrial production in the eurozone.
"The fear of a systemic collapse has decreased. Therefore risk appetite of global investors is increasing gradually," said Commerzbank analysts in a statement.
In the US, some analysts were suggesting more rate cuts from the Federal Reserve even after the latest rescue efforts.
"While the actions spurred optimism in the markets initially, they have failed to translate into larger moves throughout the day," said Terri Belkas at Forex Capital Management.
"Indeed, considering the probable negative impact of the financial crisis on economic growth in the US and signs of easing inflation pressures, the members of the Federal Reserve may find themselves cutting rates again before year-end, which leaves downside risks open for the US dollar."
In late US trade, the dollar stood at 1.1370 Swiss francs from 1.1379 on Monday. The pound was at 1.7394 dollars after 1.7331. - AFP/de
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