The dollar came under pressure again on Friday after mounting a rally on Thursday following comments from President Trump suggesting he would ultimately like a strong US currency.
Following Thursday's broad dollar rally, the currency gave way again on Friday, resuming its recent weaker trend, leaving the dollar index - a measure of the currency's value against a basket of its rivals - was testing its lowest levels in more than three years.
Weak dollar/strong dollar
The US currency has been highly volatile in the past couple of days. Comments from US Treasury Secretary Steven Mnuchin on Wednesday stating dollar weakness was good for the US economy and trade, sparked a bout of selling that lasted until Thursday afternoon.
At this point, speaking from Davos, Trump said: "The dollar is going to get stronger and stronger, and ultimately I want to see a strong dollar."
He added that Mnuchin's comments had been taken out of context, and that just because the Treasury chief had said a weak dollar was good for trade did not mean he supported a weak dollar.
No support from Fed
Dollar weakness has been a factor of the foreign exchange markets for the past year or so. Contrary to market norms, the greenback has not been supported by the Federal Reserve's monetary tightening policy after four rate hikes, mainly for structural and political reasons.
The president's haphazard first year in office has done little to encourage investment, and it has taken some time for Treasury yields to recover following years of ultra-loose monetary policy - particularly as inflation has remained stubbornly low.
But many now believe that alongside the strong US economic rally the dollar is set for recovery in 2018.
"We expect the dollar to stage a recovery," said Andrew Kenningham at Capital Economics.
"While factors other than monetary policy expectations have been driving the dollar for some time, we think that will change as expectations for the Fed to raise rates begin to increase."
Ian Shepherson at Pantheon Macroeconomics said: "Clear evidence of inflation pressure in the US over the next few months, coupled with continued dovish noises from European Central Bank president Mario Draghi, ought to trigger something of a correction, if not full-blown reversal of the trend."
On Friday, however, the weak dollar trend was very much back in action. The dollar index was down 0.52% at 88.93, having hit a three-year low of 88.43 on Thursday.
The euro climbed 0.75% to $1.2489, while sterling added 0.86% to $1.4260 and the yen gained 0.43% to Y108.94.