The euro and the dollar fell against a broadly stronger yen on Wednesday as euphoria from government plans to recapitalise hobbling banks ebbed and focus turned to how the bailouts would impact the global economy.
Risk-wary investors flocked to the Japanese currency as a near 3 percent fall in European shares underlined the possibility that companies would continue to struggle through the credit crisis, which would further weaken economies in the eurozone and around the world.
"Governments have done as much as they can to deal with the banking crisis. The fires have been put out for now, so panic buying in the yen that we saw last week has subsided," said Kikuko Takeda, senior currency economist at BTM UFJ.
"But with European shares falling today, it's not surprising that yen support is continuing," she said, adding that more bad news about the banking sector would be seen as a cue to buy yen. The low-yielding yen has rallied dramatically as the crisis in the banking sector prompted a frenzied unwinding in risky carry trades, which used the currency to pick up assets in higher-yielding ones.
Governments around the world have announced plans to rescue their banking sectors and kick-start interbank lending, with the United States on Tuesday saying it would inject $250 billion into its banks, including the nation's top nine lenders.
The dollar fell 1 percent to 101.11 yen by 1004 GMT, retreating further from around 103 yen hit on Tuesday and keeping the pair within range of 97.88 yen hit according to Reuters data last week for its first time since mid-March.
The dollar stayed weak after Federal Reserve Bank of San Francisco Janet Yellen on Tuesday said the economy "appears to be in a recession". A raft of economic figures due later in the day may support that view. The Federal Reserve will release its Beige Book summary of economic conditions at 1800 GMT. Before that sees the New York Fed's manufacturing poll for October, as well as figures for retail sales and wholesale prices.
The euro fell also fell a full percent to 137.75 yen, as a 2.8 percent slide in European shares kept investors keen on getting out on risky trades. The euro was largely unchanged at $1.3626, Earlier in the day, it hit a session low of $1.3537 after a German poll on Tuesday showing weak economic sentiment offered more evidence of weakness in the eurozone economy.
Figures on Wednesday showed that slowing growth in energy and food prices helped to curb inflation in the region in September, which was seen keeping intact the possibility of more eurozone interest rate cuts.
The Canadian dollar inched up against the US dollar after Canadian Prime Minister Stephen Harper was re-elected and strengthened his minority government on Tuesday. The US dollar fell as low as C$1.1539, off a high of C$1.1688 hit earlier in the day, and down from a three-year peak of C$1.2135 struck on Friday.
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