The dollar fell to a two-month low on Wednesday amid rising confidence about global growth and as China let its currency rise to a record high. Analysts said the dollar suffered as yield differentials between the US and the rest of the world widened on growing optimism over the global recovery.

That confidence was given impetus as leaks ahead of the official release of data on Thursday suggested that Chinese inflationary pressures eased into the new year. This reduced fears that Beijing would take more aggressive monetary tightening action to rein in rising price pressures. By midday in New York, the dollar index, which tracks its progress against a basket of six leading currencies, fell 0.5 per cent to 78.564, its weakest level since November 22. Analysts said dollar weakness had also intensified ahead of meetings between Barack Obama, US president, and Hu Jintao, his Chinese counterpart, in Washington.

Lee Hardman, at Bank of Tokyo Mitsubishi-UFJ, said Chinese authorities were guiding the renminbi higher into the meeting to try to deflect criticism over the inflexibility of their currency.