The dollar stayed weak against the euro this morning after the Federal Reserve kept rates steady as widely expected and emphasised a slowdown in the housing sector, stirring anticipation that its next move could be to cut rates.
The yen hit another record low against the euro and plumbed eight-year lows versus sterling and the Swiss franc as more investors bet that the Bank of Japan won't raise rates at a policy meeting next week.
The US currency fell last night after the Fed took note of "substantial" weakness in the housing market while renewing a warning on inflation.
"Talk of the possibility of a rate rise is fading as inflation pressures subside," a trader at a Japanese bank said. "I think the Fed will start to signal that it is turning more of its attention to the state of the economy."
The central bank left rates at 5.25 per cent for the fourth straight meeting.
A Reuters poll taken after the Fed's post-meeting statement showed that 13 out of 18 US primary bond dealers believe that the Fed is done raising rates and that its next policy action will be to cut them.
The euro was at $1.3285 as of 5.31am, little changed from levels in late New York trade and well within sight of a 20-month high of $1.3370 touched earlier in December.
The single currency was well supported, given that the Fed's statement came after the European Central Bank lifted rates to 3.5 percent just last week and is expected to keep raising them next year, highlighting the dollar's dwindling yield advantage.
That helped the euro to scale a record high against the Japanese currency at 155.50 yen on electronic trading platform EBS.
The low-yielding yen took a beating on the crosses, sinking to eight-year lows against sterling and the Swiss franc at Yen230.62 and Yen97.55 respectively, and plumbing a nine-year trough versus the Australian dollar.