The dollar fell the most in more than a week against the euro and dropped versus the yen and Korean won on a report South Korea will diversify its currency reserves.
The country's central bank, which has US$200 billion in reserves, will "diversify the currencies in which it invests," Reuters said on Monday, citing a spokesman from the Bank of Korea in a parliamentary report.
Byun Jai Yung, head of the bank's planning department, said in a telephone interview that he can't comment.
"Support for the dollar is quickly disappearing," said Kenichiro Ikezawa, who manages US$1 billion in overseas debt at Daiwa SB Investments in Tokyo. "This Korean story is having quite an impact because it feeds into suspicion that others are also seeking to cut their exposure to the dollar."
The dollar fell to US$1.3186 per euro at 8:04am in London, from US$1.3068 late on Monday in Toronto, according to EBS, an electronic foreign-exchange dealing system. It dropped to ?104.53, from ?105.54.
US markets were closed on Monday for a national holiday.
The US currency is up 3.8 percent from a record low of US$1.3666 versus the euro on Dec. 30.
"Korea is one the largest holders of foreign exchange reserves in the world, which means they will be able to buy more non-dollar currencies," said Greg Gibbs, a Sydney-based senior currency strategist at RBC Capital Markets.
South Korea has the world's fourth-largest reserves, behind Japan, China and Taiwan, according to information compiled by Bloomberg.
Korean investors, including the Bank of Korea, are the fifth-biggest foreign holder of US Treasuries, with US$69 billion as of December last year, the most recent figures available, according to the Treasury Department. Japan, the largest, has US$711.8 billion of marketable Treasuries.
The yen's gain accelerated after it reached ?105.40 per dollar, where pre-set orders to buy the Japanese currency were clustered, said Tsutomu Soma, a trader in Tokyo at Okasan Securities Co. The dollar's slide against the euro quickened after US$1.31, where some investors placed similar orders, said Jake Moore, a strategist at Barclays Capital in Tokyo.
"The sheer size of Korea's reserves makes it unignorable," said Tetsu Aikawa, currency sales manager in Tokyo at UFJ Bank Ltd, a unit of Japan's fourth-largest lender. "That revives the memory in people's minds how badly the dollar was sold when Russia said it was diversifying."
The US currency may weaken to US$1.32 per euro today [yesterday], he said.
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