The dollar struck a two-week low versus the yen on Thursday as a slight improvement in confidence trimmed the US currency's attractiveness as a safehaven, traders said.
The dollar has found support in recent months on the view that however bad the financial crisis gets, the unit offers a better refuge than others in the storm.
By the same reasoning, whenever overall sentiment improves, the dollar tends to ease as investors fell emboldened to look elsewhere for opportunities.
In European trade, the dollar fell sharply to 95.83 yen from 97.29 yen in late in New York on Wednesday.
The euro fell to 1.2785 dollars from 1.2842 dollars on Wednesday.
"The advance toward the key 100 level in dollar/yen was always going to be viewed as an obvious point to sell dollars and market participants have duly taken this on," said Derek Halpenny, European head of global currency research at The Bank of Tokyo-Mitsubishi UFJ.
The dollar is weakening on signs that the battered financial sector is beginning to show some signs of recovery following Citigroup's announcement that it was seeing a return to profitability, traders said.
Traders overlooked figures showing that Japan's economy shrank at a 12.1 percent annual pace in the fourth quarter of 2008 -- the worst performance in almost 35 years but not quite as bad as first thought.
In Europe, traders chewed over data showing German production plunged 7.5 percent in January from December. The German economy ministry described the fall as "exceptionally strong."
The figures were more than twice as bad as analyst forecasts for a fall of 3.3 percent in January after December's drop of 3.9 percent.
Germany is facing its worst recession in six decades, with the government expecting the economy to shrink 2.25 percent this year but analysts increasingly think the downturn will be worse at between three and five percent.
In London trade on Thursday, the euro was changing hands at 1.2785 dollars against 1.2842 dollars late on Wednesday, at 122.16 yen (124.94), 0.9284 pounds (0.9260) and 1.4756 Swiss francs (1.4804).
The dollar stood at 95.83 yen (97.29) and 1.1575 Swiss francs (1.1525).
The pound was at 1.3730 dollars (1.3862).
On the London Bullion Market, the price of gold rose to 912.14 dollars an ounce from 902.70 dollars an ounce on Wednesday.
