The dollar depreciated 4% in the first quarter against the currencies of US trading partners according to the New York Federal Reserve Bank's foreign exchange report released today.

The 4.0% decline is based on the Fed's major currencies index. Against individual currencies, the biggest drops were against the Japanese yen, -10.8% and the euro, -8.2% to a record low.

Appreciation of the Chinese yuan against the dollar 'accelerated notably,' the report said, rising 3.9 pct for the first quarter vs 2.8 pct in the fourth quarter.

The currencies index is based on a weighted average of the foreign exchange values of the U.S. dollar against the currencies of major U.S. trading partners. The index weights change over time depending on export and import shares.

Within the January-March period, the New York Fed's analysis found three distinct periods of foreign exchange behavior.

First, during January and February, 'the trade-weighted exchange value of the dollar remained largely range-bound, amid elevated uncertainty about the relative growth prospects of the Group of Three (G-3) economies, the US, Euro area and Japan,' the report said.

Traders were afraid to place currency bets that could turn into costly losses depending on how each of the three economies performed and the dollar fell just 0.6% in this early period.

Then, from late February to mid-March, the dollar began to plunge against both the euro and yen 'as credit market conditions worsened and the belief that US economic growth would slow relative to that of most other countries became more widespread.'

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