The U.S. dollar fell to a three-week low against the yen on Monday, as a grim view on the global economy and a generally weaker tone in equities worldwide prompted investors to shun riskier assets.
The euro was also under pressure on expectations the European Central Bank will lower interest rates later this week, and also as investors sought refuge in the relative safety of dollar-denominated assets.
"Risk aversion is the predominant theme in the market this morning -- that's clearly evidenced in the rise of the yen across the board and the decline in higher yielding currencies," said Omer Esiner, senior market analyst at Ruesch International in Washington.
Global equities kicked off the week on a down note after Friday's U.S. payrolls data showed the world's largest economy lost more than one million jobs in the final two months of the year. That, combined with a slew of recent dismal economic reports from the euro zone and Britain, heightened fears of a deepening global economic downturn.
The grim outlook was highlighted by European Central Bank President Jean-Claude Trichet, who said on Monday that the global economy will "slow down significantly in 2009" with the industrialized economies having negative figures. Trichet made the comments at a gathering of central bankers at the Bank for International Settlements.
In early New York trading, the dollar tumbled to a 3-week low against the yen at 89.62 yen, according to Reuters data, and last traded down 0.6 percent at 89.79 yen.
The euro also fell 0.7 percent against the yen to 120.38 yen, having earlier hit a one-month low of around 120.09 yen.
"Global equities have sold off as a result of the darkening outlook for the global economy and that has rekindled demand for the relative safety of U.S. assets," said Ruesch's Esiner. "At the same time, expectations for an euro zone rate cut on Thursday are undermining the euro."
The euro fell 0.2 percent against the dollar to $1.3409.
The higher-yielding Australian dollar lost 2.5 percent versus the U.S. dollar to US$0.6858 and fell 2.3 percent against the yen to 61.55 yen, weighed down by risk aversion and lower commodity prices.
Sterling was also sharply lower, dropping 1.9 percent against the dollar to $1.4884. The pound also fell 2.2 percent against the yen at 133.50 yen
ECB EYED
Data last week showed factory output collapsing across Europe, raising the prospect for a sharp economic downturn and increasing expectations for a large rate cut when the European Central Bank meets to decide policy on Thursday.
Such sentiment was echoed by IMF Managing Director Dominique Strauss-Kahn, who said in a media interview on Monday that Europe was "behind the curve" on taking economic stimulus measures and he expected interest rates to decrease further in Europe.
Markets expect the ECB to cut key interest rates by 50 basis points to 2.0 percent, according to a recent Reuters poll. Interest rate futures on Monday showed they expected a 75 basis point cut, and some chancing a full one percentage point move.
