The U.S. dollar fell sharply on Tuesday to its lowest level in nearly four months, as measured by an index of major currencies, with fears of a global economic slowdown pushing investors into safe-haven currencies like the Japanese yen and Swiss franc.
Risk appetite has waned as a selloff in major stock markets worldwide, along with a renewed tumble in crude oil prices, and worries about European banks shook confidence in the greenback.
The U.S. dollar index, which measures the greenback against a basket of world currencies, fell to 95.663, its lowest since Oct. 22 on Tuesday.
Given the dismal performance of oil and equity markets, and the market's lack of faith in the Federal Reserve's forecast for four interest rate rises this year, investors are unsure of how to value the dollar, said John Doyle, director of markets at Tempus in Washington
"That's been the theme of the week and really the theme of a lot of the year so far," Doyle said, "and it's going to take likely a rebound in equities to see the U.S. dollar strengthen, especially against the euro, Swiss franc and Japanese yen."
The yen and Swiss franc perform well in times of financial turmoil since they are often used to fund trades of more risky assets because of their low interest rates. When investors reverse those risky bets, they buy back those currencies.
The dollar fell to its lowest against the since November 2014, having fallen more than 5.0 percent against the currency since the start of February. The dollar was trading around 115.101 yen, down 0.41 percent late Tuesday.
The flight to safety also pushed the yield on the benchmark 10-year Japanese government bond negative for the first time, sending it as low as minus 0.035 percent.
The dollar fell to its lowest since mid-October against the Swiss franc, trading as low as 0.9715 francs and down more than 1.5 percent on the day.
The slump in the greenback in some ways runs counter to expectations that higher-yielding currencies like the dollar would strengthen as the Bank of Japan and the European Central Bank run loose monetary policies.
The dollar benefited for most of the past two years from the perception that the Federal Reserve would raise interest rates which it eventually did in December last year.
But with some U.S. economic data weaker than expected in recent weeks, and U.S. equities sliding during a poor corporate earnings season, recent commentary from Fed officials has suggested the central bank would not rush into further interest rate rises, leading to less support for the dollar.
The market is now awaiting Fed Chair Janet Yellen's Wednesday testimony to the U.S. Congress on Wednesday which may provide more clarity on monetary policy.
The euro also rose more than 1.0 percent against the U.S. dollar on Tuesday to $1.1337, its highest since Oct. 22 and was trading around $1.1296 late Tuesday, up 0.98 percent.
The euro, Swiss franc and other European currencies earlier fell by more than 1.0 percent against the dollar on Oct. 22 last year after comments by European Central Bank President Mario Draghi signaled that new stimulus measures were likely.
Among emerging currencies, Mexico's peso continued to slump, touching a historic low of 18.935 pesos to the dollar on worries that weak global demand will hurt its economic growth.