The dollar rallied broadly today, hitting a one-month high against the euro as falling shares and weak oil prices underlined the global economy's problems, cranking up the drive to shed risky positions.
Escalating risk aversion also boosted the low-yielding Japanese yen to its highest level against the dollar in nearly four weeks.
The euro fell as low as $1.3221, according to Reuters data, its weakest level since mid-December, as investors also awaited a European Central Bank policy meeting on Thursday, when analysts expect the Governing Council to cut interest rates by 50 basis points to 2 per cent.
At 12.15pm the euro was trading at 91 pence.
The threat of ratings downgrades to some euro zone countries also stung the euro, while the possibility of a lower rating on New Zealand's foreign currency debt pushed the New Zealand dollar to a one-month low against the dollar.
¿The main story is risk aversion, with the dollar still trading as a safe-haven asset," said Christian Lawrence, currency strategist at RBC in London.
¿Currencies are closely tracking equities right across the board. To follow the FX market is really about stock watching at the moment.¿
A 2.4 per cent slide in European shares, along with a 2.5 per cent fall in US crude oil prices, reminded investors that the global economy is rapidly deteriorating, prompting them to dump higher-yielding currencies.
Further emphasising weakness in the euro zone, ECB President Jean-Claude Trichet on Tuesday said that authorities could not afford to let their guard down in dealing with challenges in the wake of the financial crisis
By 12.15pm, the euro traded 0.6 percent lower at $1.329, hovering near its one-month low touched in early London trade. Against the yen, it slipped 0.7 per cent to 118.39 yen, having fallen to 117.69 yen, likewise its weakest in a month.
¿The market is still confident that the United States can deal with a recession better than the euro zone,¿ said Ulrich Leuchtmann, head of currency research at Commerzbank in Frankfurt.
The New Zealand dollar tumbled 3.4 per cent to $0.5540, its weakest level since mid-December, while the Australian dollar fell more than 1.5 per cent to $0.6680, also a one-month low.
The high-yielding currencies also hit roughly one-month lows against the yen as investors unwound yen carry trades, in which the low-yielding Japanese currency was used to buy assets in higher-yielding ones.
Reuters