The U.S. dollar was mixed versus its major counterparts Thursday, putting renewed pressure on the European single currency and the British pound but slipping versus the Japanese yen.
"The dollar does seem to be finding some renewed support of late, although with the economic situation deteriorating across the board, this move does seem to be one that is being driven more by fear and the general herd mentality," said James Hughes, a strategist at CMC Markets.
The British pound plunged to around $1.3621 at one point Wednesday, its weakest level versus the dollar since 1985, before rebounding in late trade.
Sterling was back under pressure Wednesday to trade at $1.3757, after rebounding to $1.3977 in North American action late Wednesday.
Worries about the U.K. banking sector and the potential for further bailouts continues to weigh on sterling, said economists at Lloyds TSB.
The euro also broke a string of losses against the dollar on Wednesday only to come under more pressure in Thursday's action.
The decision by Standard & Poor's on Wednesday to cut Portugal's long-term sovereign credit rating by one notch had little immediate impact on the euro, but served to further underline ideas that the single currency can't be considered a "safe haven," wrote strategists at Commerzbank.
At the same time, that doesn't mean the euro simply falls, they said. Price-sensitive market participants have been tending to favor selling the euro versus the dollar, which could lead to a speedy upside euro correction once the downtrend subsides.
Economists said data Thursday on U.S. new housing starts and weekly initial jobless claims could help set the tone for foreign exchange markets over the rest of the session.
The euro slipped to $1.2996 from 1.3031 late Wednesday.
The dollar index , which tracks the dollar against a trade-weighted basket of six major currencies, rose to 85.729 from 85.407.
Against the Japanese currency, the dollar slipped to 88.74 yen from 89.26 yen.
The Bank of Japan on Thursday said country will see deflation for the next two fiscal years as the economy shrinks, after revising down its growth forecast and holding interest rates unchanged. See full story.
The BoJ's policy board voted unanimously to keep interest rates at 0.1% Thursday, after cutting them from 0.3% last month. It said a recovery would begin to kick in by the second half of fiscal 2010, ending March 31.
