The dollar traded near record lows versus the euro Thursday over renewed concern about the health of the U.S. housing market and as investors pondered the Federal Reserve's next interest rate move.
The dollar reached its lowest levels in years Wednesday following a speech by Fed Chairman Ben Bernanke in which he cut growth forecasts for the U.S. economy for this year and next and said the hard-hit housing market will remain sluggish.
Bernanke is giving a second day's testimony to Congress.
Analysts expect his speech will reiterate Wednesday's remarks on inflation.
"Less hawkish comments from (Ben) Bernanke yesterday are not helping the dollar," said Steven Butler, director of foreign exchange trading at Scotia Capital in Toronto. "He showed a little less concern about housing than he had let on before but it seems there is a lot of euro crosses dominating today and that's keeping the euro well-supported."
In mid-morning trading in New York, the euro was up on the day against the dollar, having hit $1.3834 on Wednesday according to electronic trading system EBS, its strongest level since its launch in 1999.
The dollar also touched a record low versus the euro on Wednesday on news two Bear Stearns hedge funds exposed to the risky subprime mortgage sector were now virtually worthless.
Sterling was down versus the dollar after softer-than-expected U.K. retail sales data, coming further off a 26-year peak of $2.0548 hit on Wednesday.
The dollar was up against the yen but the dollar index, a measure of its value against a basket of six major currencies, was slightly down at 80.352.
The index fell to a 12-year low of 80.227 on Wednesday.
The euro was higher against the yen.
The Philadelphia Federal Reserve Bank will release its business activity index for July at 12 pm and the Fed publishes minutes from its June 27-28 policy meeting, where it kept key U.S. interest rates unchanged at 5.25%.
The market currently reckons U.S. rates will have to stay on hold or be cut at some point but analysts expect the Bank of England and the European Central Bank to raise rates in September, which is seen supporting the pound and the euro.
"The FX market has warmed to the idea that the Fed's going to be on hold for the rest of the year so it will have to look elsewhere for direction, probably other asset classes. The dollar's movements are very much dependent on how the U.S. corporate bond market trades, at least for the time being," said Paul Mackel, senior currency strategist at HSBC in London.
Riskier asset classes like corporate bonds, equities and emerging markets were steady to firmer on Thursday, while government bonds were weaker.
Currency markets showed little reaction to data from Beijing on Thursday that showed China's economy in the second quarter grew at a sizzling 11.9%, the fastest pace of growth in 11 years.