The dollar continues to suffer from last week's relatively dovish policy statement from the US Federal Reserve and a recovery in risk assets, such as equities. "Its accompanying statement, perceived as more dovish than expected, led to a decline in the dollar and a rally in equity markets," said Ian Stannard, currency strategist at BNP Paribas. Though Stannard is "dollar bearish", he said there is "no reason yet to expect the dollar to fall out of bed", adding that this Friday's crucial US labour market report has the potential to help the US currency rebound. A number of currency watchers also think the dollar's move lower since the Fed statement last week has been overdone. Though the quarter point hike in the Fed funds rate to 5.25 pct was expected, the rate-setting Federal Open Market Committee cautioned about the outlook for growth. In response to the statement, the Fed funds futures now attach a 65 pct of another rate hike in August, down on 80 pct predicted before "Although the post-Fed trading environment has been characterised by a significant and dollar negative shift in the relative yield structure, the scale of the FX move still looks excessive," said Steve Pearson, currency strategist at HBOS. Importantly, he said pressure on the dollar has been compounded by a renewed appetite for riskier assets, particularly in emerging markets. This renewed appetite has sucked out significant capital fro US markets, he added. The focus on the Fed over recent days has masked a further ratcheting up in European interest rate forecasts following strong euro zone economic news, particularly in Germany, and hawkish commentary from ECB officials, most notably from Yves Mersch, Luxembourg's central bank governor. This morning's release of the euro zone manufacturing PMI survey further reinforced expectations of more aggressive tightening from the ECB.