Investor concerns have shredded the dollar's value

Traders said the dollar was plagued by concerns the US will no longer be able to finance a huge trade gap if foreign investors tire of low interest rates.

The dollar was up 0.1% on the yen, but still trading around three-year lows, at 106.14 yen.

In New York, the euro fell to $1.2637 after topping $1.28 for the first time on Tuesday. The pound fell to $1.8162.

Japanese authorities

But traders said the pause was little more than a temporary respite for investors to lock in profits from their backing of the greenback's slide.

With the US government apparently content to let the dollar slide, they said, the decline was far from over.

euro/dollar exchange rate The ups and downs of the euro against the dollar and 23 other currencies

The dollar has been supported in part against the yen because of the likelihood that Japanese officials will intervene in foreign exchange markets despite the criticism of their Group of Seven colleagues.

However US currency traders say continued intervention by Japanese authorities as the only force preventing that key level of 106 yen from breaking.

The yen's appreciation against the dollar hurts Japanese exports, a sector key to the nation's continued recovery, the Japanese leadership has argued.

Meanwhile the influential Ifo Institute in Germany says $1.30 is the point at which profits are threatened for European exporters.

The European Central Bank meets on interest rate policy on Thursday.

Intervention

Part of the weakening of the euro, some believe, is down to speculation that the European Central Bank (ECB) will finally take action against the rise of the euro.

The ECB's public position to date has been in favour of a "strong and stable" euro, which investors have taken as a sign it will not intervene.

But the rapid appreciation - a gain of 12% in just two months - could knock the 12-nation eurozone's chances of economic recovery.

The Bank of Japan has made no secret of its dissatisfaction with the rise of the yen, and has already intervened in the market to push the currency lower.

The pound, meanwhile, has also surged, worth 16% more against the dollar since early September.

Back on the slide?

Still, few believe the pause in the dollar's decline to be anything but a momentary change.

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"Basic fundamentals haven't changed, and so I expect this to be just a temporary adjustment," said Kenji Kobayashi, from the Bank of Tokyo-Mitsubishi.

The continuing threats of terrorist attacks are also contributing to the weakness of the dollar.

The US trade and government deficits are still widening, and the US Federal Reserve shows no sign of wanting to raise interest rates much above their current 48-year low of 1%.

That helps keep the dollar low, and in turn could help bridge the trade gap by making US exports cheaper and imports from other countries more expensive.