The euro raced above $0.93 today as investors fled the yen and the Tokyo stock market, which slumped to 15-year lows.
The euro was the main beneficiary of the yen sell-off sparked by a 3.3 per cent slump in the Japanese stock market, with the dollar also blighted by a gloomy outlook, Standard and Poor's analyst Mr Will Rugg said.
"Foreign investors seem to be bailing out of Japan," he said. "According to the Tokyo Stock Exchange, foreign funds were net sellers on the Nikkei for the first time in weeks," he said.
With the Nikkei index approaching 12,000 points - a level not seen since April 1985 - yen selling appeared to have accelerated.
Another analyst said that if the Japanese economy could not rebound during a period of economy prosperity in the United States and the world, "it is unlikely to do so during a dramatic US slowdown."
The euro was set to benefit from such a shift, Commerzbank analyst Mr Nick Parsons suggested.
It was an "observable fact" that the euro rises against the dollar when the dollar rises against the yen, he said.
Mr Parsons said that the market was also "entering a new phase of dollar bearishness" and the euro had broken a key threshold of $0.9288 yesterday.
Credit Suisse First Boston currency strategist Mr Peter von Maydell said the dollar had also been hit by a change in market sentiment surrounding Federal Reserve chairman Mr Alan Greenspan.
"Greenspan has been getting bad publicity now for a number of days," he said. "He is loosing public esteem. He should have been cutting rates more and sooner and even now he is not cutting them enough."
AFP