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The U.S. dollar recovered on short covering on Tuesday while Asian stocks retreated from a one-month high.
The euro weakened, though it still held within striking distance of a one-month high against the U.S. dollar before a much expected interest rate increase on Thursday.
The Australian dollar languished near the day's lows after the central bank held interest rates at 4.75%, as widely expected. RBA also said the economy was unlikely to grow as strongly in 2011 as it first thought.
The RBA's dovish comments led to a short squeeze in the U.S. dollar.
The RBA's accompanying statement bolstered expectations for a moderate slowdown in Asia.
"It's a classic short squeeze in the dollar, but I don't think the recent 'risk-on' trend has changed because of this sharp move," said Tsutomu Soma, a senior manager at Okasan Securities. "Both the Aussie and euro were overbought, so many players simply wanted to lock in profits made on those rallies," Soma said.
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