LONDON, July 25: The dollar fell across the board on Thursday, dropping back through parity with the euro, as the latest rally on Wall Street provided a calmer moment for investors to readdress long-term doubts about the greenback.

US equity markets surged on Wednesday after huge falls in stock markets across the globe, but the dollar — which has followed US equities’ fortunes closely in recent months — went the other way, raising questions whether it may have decoupled.

People were generally unsettled by the degree of equity market instability, said Ian Gunner, head of foreign exchange research at Mellon Financial Corporation.

Now with the first sign of equity market stabilization it produces a calmer environment for people to revert to previous FX trends that were in place — i.e. a weak dollar.

The dollar was more than half a per cent down around $1.0010 per euro, over half a per cent lower against the Swiss franc at 1.4475 francs but steady against the yen at 116.60.

While the greenback surged whole percentage points earlier this week, it is in fact 12 per cent down against the euro this year, 11 per cent weaker against the yen and off 12 per cent against the Swiss franc.

Comments from US Treasury Secretary Paul O’Neill that the US economy remained solid and the recovery was well under way had no impact.

O’Neill said in a speech prepared for US manufacturers that he saw a “disconnect” between stock market and economic fundamentals but was confident the market would focus on those fundamentals again.

The Dow Jones industrial average booked its largest gain since October 1987 on Wednesday but analysts said this had not changed sentiment on the dollar.

If a 400 point rally in the Dow can’t attract foreign funds, then you’ve still got to question how can the US finance its current account deficit, said Kamal Sharma, currency strategist at Commerzbank.

US stock futures were pointing to sharp losses on Thursday, with markets jittery about an investigation into AOL Time Warner’s accounting practices by the US Securities and Exchange Commission.

Traders and analysts are still trying to make sense of the dollar’s erratic moves in the past few days, saying some investors have opted to stay on the sidelines amid all the turmoil while others have stuck to very short-term strategies.

Senior Japanese Finance Ministry official Zembei Mizoguchi gave the market a timely reminder that Japan does not want to see export-damaging yen strength.

He said the ministry was always considering various steps in the foreign exchange market, adding that excessive exchange rate movements were undesirable.

In the eurozone, Germany’s key Ifo business sentiment index fell to 89.8 in July from 91.3 due to a less favourable manufacturing mood, according to the Munich-based institute.

The west German business conditions and expectations indices also fell from the previous month’s levels and the euro briefly ticked lower before recovering against the dollar.—Reuters