The dollar hit a two and a half month low against the euro and an 18-month low versus sterling today after a Chinese official said plans for diversifying China's $1 trillion reserves included looking at the currency mix.
The dollar slumped for a second straight session after Zhou Xiaochuan, the Chinese central bank governor, said China planned to diversify its assets across different currencies and investment instruments, including in emerging markets.
Analysts noted that China has pointed to such plans before, but the news rekindled worries that any diversification by China away from the dollar, which analysts say make up around 70% of its reserves, could hurt the currency.
The news provided speculators with a good excuse to sell the currency, especially coming amidst rate rises by other central banks that are starting to erode the dollar's relative interest rate appeal for investors.
In late morning US trade the euro was up 0.3% on the day at $1.2865, having hit a peak of $1.2900, its highest since August 21.
Sterling was almost 0.5% higher at $1.9130, pulling back from an 18-month peak of $1.9180.
