The dollar was firmer against the euro Tuesday, helped by comments from the head of the US Federal Reserve who indicated more could be done to help US banks to weather the credit crunch.
Dealers said Fed chairman Ben Bernanke's remarks provided support for the dollar amid fresh concerns over the health of the US financial sector in the continuing fallout from the US subprime home loan crisis.
In late European trade Tuesday, the euro was at 1.5661 dollars, down from 1.5730 dollars late on Monday.
Against the yen, the dollar was also stronger, at 107.38 yen after 107.10.
"We are currently monitoring developments in financial markets closely and considering several options, including extending the duration of our facilities for primary dealers beyond year-end, should the current unusual and exigent circumstances continue to prevail in dealer funding markets," Bernanke said in a speech to a conference.
Ashraf Laidi at CMC Markets said Bernanke's remarks were taken as a "lifeline" for the dollar.
"This may be what the markets wanted to hear after credit woes pertaining to US financials resurfaced sharply (on Monday)," Laidi added.
Banks came under pressure Monday after a warning by US investment bank Lehmans that more subprime losses were likely and that key US government backed mortgage providers Freddie Mac and Fannie Mae may need to raise more capital as a result to cover their commitments.
Dealers said concerns that such important institutions -- traditionally considered investment safe havens -- were coming under pressure increased risk aversion even as the banks get ready to report earnings.
Global stocks suffered sharp falls Tuesday on fresh fears for the banking sector, with most now down by more than 20 percent from their late 2007 highs, technically making them "bear markets."
A statement Tuesday by some of the world's most powerful leaders at the G8 summit in Japan made no mention of the dollar's current weakness although US President George W. Bush again said that he was committed to "a strong dollar."
The dollar had earlier found limited support after weekend remarks from Bush in favour of "a strong dollar" ahead of the G8 summit.
The markets are now awaiting the latest quarterly earnings from many large US corporations and banks to get a fresh lead on the economic outlook.
"The (foreign exchange) market backdrop remains one of relatively high risk aversion," said Calyon analyst Mitul Kotecha.
"New credit fears ... following a report that the US (home loan) agencies Fannie Mae and Freddie Mac required more capital as well as news that mortgage lender IndyMac was in urgent need of fresh capital, resulted in an increase in risk aversion."
In London trading late Tuesday, the euro changed hands at 1.5661 dollars against 1.5730 dollars late on Monday, at 168.11 yen (168.45), 0.7952 pounds (0.7956) and 1.6160 Swiss francs (1.6140).
The dollar stood at 107.38 yen (107.10) and 1.0321 Swiss francs (1.0261).
The pound was at 1.9690 dollars (1.9765).
On the London Bullion Market, the price of gold rose to 921 dollars per ounce from 916.75 dollars late on Monday.
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