The dollar fell against the euro and most other major currencies on Thursday as investors speculate that Germany would lead an effort to support European countries in financial troubles.
The euro dropped against the dollar in the previous two sessions on credit problems of Eastern Europe banking sector and some EU banks. Two major credit rating agencies warned on Tuesday that they might downgrade credit ratings of these banks.
The single currency rebounded on Thursday, helped by profit taking and hopes of a possible support. German Finance Minister Peer Steinbrueck said earlier this week that euro-region countries may be forced to bail out cash-strapped members of the 16-nation bloc, going further than his counterparts in saying euro states can't be allowed to fail, Xinhua reported.
"The euro-region treaties don't foresee any help for insolvent countries, but in reality the other states would have to rescue those running into difficulty,"Steinbrueck said.
Germany also announced measures that would allow it to nationalize its banks for the first time in modern German history, helping ease concerns.
However, the euro pulled off from session highs in late trading after German Chancellor Angela Merkel reportedly declined to say whether Germany, with the largest economy in Europe, would come to the aid of euro-zone nations under severe fiscal stress.
The euro bought 1.2684 dollars in late New York trading compared with 1.2555 dollars it bought late Wednesday. The pound rose to 1.4302 dollars from 1.4224 dollars.
The dollar fell to 1.2555 Canadian dollars from 1.2584 Canadian dollars, and fell to 1.1733 Swiss francs from 1.1762 Swiss francs. It rose to 94.40 Japanese yen from 93.76 Japanese yen.