The yen and the dollar were headed for annual gains versus the euro as the first simultaneous recessions in the U.S., Europe and Japan since World War II encouraged investors to take refuge, Bloomberg reported.
The dollar fell the most against the yen in more than two decades in 2008 on speculation the Federal Reserve's zero interest rate will undermine demand for the greenback. The euro was poised for its biggest rally against the pound since the 15- nation currency's 1999 debut, trading within 2 pence of parity, on speculation the recession in the U.K. will deepen.
"The risks are still heavily weighted to the downside for the dollar-yen," said Lee Hardman, a London-based currency strategist at Bank of Tokyo-Mitsubishi Ltd. "The threat of a long slowdown in the U.S. and the fact the Fed has effectively dragged interest rates to zero will continue to undermine the dollar."
The dollar traded at 90.50 yen at 7:57 a.m. in New York, compared with 90.34 yesterday. It has fallen 19 percent this year, the most since 1987. The U.S. currency gained 0.8 percent to $1.3944 per euro from $1.4057, extending its 2008 advance to 4.5 percent. The euro dropped 0.6 percent to 126.21 yen from 126.97, extending its annual decline to 23 percent.
The U.S. currency may weaken to 80 yen and strengthen to $1.30 per euro in the first half of 2009, Hardman said. His forecast compares with median estimates of 100 yen and $1.26 per euro in a Bloomberg News survey of analysts.