The dollar hit a record low against the euro and a basket of major currencies this morning after the Federal Reserve said US growth was likely to slow in 2008, underscoring market expectations for more monetary easing.
The yen rose to a two-year high against the dollar as a tumble in Asian shares amid growing worries about the health of the US economy prompted investors to further cut risky positions in carry trades.
Besides market expectations that the Federal Reserve will cut interest rates further, the dollar has been under pressure from growing speculation that Middle East oil exporters, including Saudi Arabia, may ditch or revalue their dollar pegs.
The Tokyo bourse's benchmark Nikkei average slumped 2.5 per cent to close at a 16-month low, with stock indexes in both Hong Kong and South Korea falling more than 3 per cent.
European equities fell nearly 1.5 per cent in early trade as markets digested the impact of oil prices spiking to a record high just shy of $100 a barrel.
By 8.24pm, the euro had given up some of its gains to trade down 0.1 per cent on the day at $1.4801, after striking a record high of $1.4856, according to Reuters data.