Up until a few weeks ago a firm dollar was a gift to central bankers outside the U.S., with weaker domestic currencies providing a powerful economic boost and aiding monetary policy easing.
But with the dollar now in reverse amid mixed U.S. economic data, analysts say central banks in Europe and Japan may have to maintain monetary stimulus for longer than anticipated.
The dollar fell to a two–week low of about 118.90 yen on Thursday, while the euro hit a three-month peak around $1.1445 – taking its gains in the last month to just about 8 percent.
It recovered partly later in the session, but remained near recent lows.
Disappointing economic news has knocked the wind out of the sails of the resilient greenback. Take Wednesday's data, for instance, that showed retail sales were unchanged in April against analyst expectations for a 0.2 percent rise, fuelling talk that the Federal Reserve would raise interest rates later than previously expected.
"As the prospect of Fed rate hikes pushes further out, the likelihood that other central banks will be forced to maintain easy monetary policy settings for longer also increases," Jane Foley, a senior currency strategist at Rabobank, said in a note on Thursday.