The dollar extended its sharp weakness against other major currencies Thursday, as the Federal Reserve's surprising decision to aggressively pump liquidity into the financial system continued to weigh on the greenback. The dollar plunged Wednesday in the wake of the Fed's announcement that it would buy $300 billion worth of U.S. government debt in coming months. The dollar index , a measure of the greenback against a basket of major currencies, fell 1.4% to 83.04, down from 84.184 in late North American trade Wednesday. The index had traded at 86.471 shortly before the Fed's announcement Wednesday. The euro rose to its highest level since January and traded at $1.3657 in recent activity, up from $1.3494. The euro had changed hands near $1.3105 before surging after the Fed move Wednesday. The euro has rallied 5% over the last 24 hours and more euro strength is likely ahead, said Kathy Lien, director of currency research at GFT in New York. Last December, when the Fed first brought up the prospect of buying U.S. Treasuries, the euro rallied 8% against the greenback. "Now that the Fed is actually following through with buying longer- term Treasuries, the impact on euro/dollar should be the same if not greater," Lien said. As a result, the euro could hit $1.40 against the dollar over the next several trading days, according to Lien. Still a safe haven? Currency traders were pondering whether the U.S. dollar has lost its luster as a haven currency after the Fed's surprise decision to effectively print money in a bid to jumpstart the U.S. economy. See full story. Since last fall, the dollar has generally benefited from de-leveraging and repatriation as traders fled riskier assets. The relationship appeared to weaken in recent weeks but remained intact. The Fed's decision to begin a more aggressive phase of quantitative easing doesn't necessarily mean the end of its haven status, said Russell Jones, head of fixed income and currency strategy research at RBC Capital Markets. "Some of the central banks that have been reluctant to go down this path may now be less reluctant to do so," Jones said. That includes the Frankfurt-based European Central Bank. ECB President Jean-Claude Trichet has acknowledged studying additional "unconventional" measures, but has appeared reluctant to back quantitative easing measures such as those announced by the Fed on Wednesday and the Bank of England earlier this month. Stephen Gallo, head of market analysis at Schneider Foreign Exchange, said the move doesn't spell the end of the dollar's ability to rise on economic and financial turmoil, but does mark the start of a more level "playing field" now that the Fed has joined the Bank of England, the Bank of Japan and other central banks in monetizing debt. "We feel that the period of aggressive dollar strength is quickly coming to an end, but it doesn't mean that the positive correlation between the dollar and risk aversion is no longer in play -- although it will be interesting to see in future sessions just how much the dollar strengthens when equity markets slide," Gallo said, in a research note. The Fed move has also boosted risk appetite, lifting equities and contributing to the greenback's weaker tone. Quantitative easing is an unconventional way to conduct monetary policy that is usually undertaken once interest rates -- a central bank's monetary policy tool of choice -- approach zero. Central banks effectively create new money out of thin air, which is injected into the economy by purchasing assets, such as bonds. The aim of the policy is to encourage lending and to avert a deflationary spiral. The Bank of England, the Bank of Japan and the Swiss National Bank have engaged in forms of quantitative easing to various degrees, putting pressure on their respective currencies. The dollar fell 1.6% to 94.61 Japanese yen, its lowest level since late February. It was down from 96.18 yen late Wednesday and from 98.29 yen ahead of the Fed news. The British pound rose 1.7% to $1.4525 against the dollar, up from $1.4293 late Wednesday and $1.3988 shortly before the Fed's announcement.

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