The dollar rose to a one-year peak against a basket of currencies on Tuesday, pushed higher by falls in the euro and the Australian dollar as the yen surged on a renewed flight to safety. After a respite on Monday when global stocks rallied on a US government bailout plan for its top mortgage firms, market participants said investors had once again begun to dump carry trades funded by the low-yielding Japanese currency.
The yen jumped 1 percent against the euro, dragging the single European currency down to a fresh 11-month low against the US dollar. "The market has gone back to credit worries and concerns about a global economic slowdown, and the yen is being bought across the board," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Bank.
"These extremely choppy moves in yen crosses are wearing out traders, but the yen's broad strength looks like it is here for the near term," he said. The euro tumbled 0.9 percent to 151.40 yen after falling as low as 150.86 on trading platform EBS, towards a 13-month low of 150.60 yen hit late last week. On Monday, the euro had shot up as high as 157.02 on EBS.
The euro was 0.3 percent lower at $1.4085 after touching a fresh 11-month low of $1.4046 on EBS. The dollar fell 0.6 percent against the yen to 107.47 yen. The dollar index, a gauge of the greenback's performance against a basket of six currencies, hit a fresh one-year high of 79.776 before pulling back to 79.590, up 0.1 percent on the day.
The decision by the US government to bail out mortgage lenders Fannie Mae and Freddie Mac was widely hailed as positive step in staving off wider financial and housing market weakness.
But Asian stocks gave up some gains on Tuesday on the view that the US take-over of the mortgage companies has addressed some risks stemming from the financial crisis but has not solved it. The rescue plan had not given the US currency clear direction or fully reversed the larger trend of risk aversion, analysts said.
"The Fannie and Freddie take-over is an open-ended question as far as the foreign exchange market is concerned. There is still confusion," said Motonari Ogawa, director of currency trading at Barclays Bank. "It is difficult to embrace the take-over as a fully positive factor," he said. The yen's resilience also encompassed the Australian dollar and sterling. The Australian dollar sank 1.7 percent to 86.51 yen after jumping as high as 90.81 on Monday, according to Reuters data. It tumbled 1 percent against the dollar to $0.8050 after touching $0.8020, the lowest level since August, 2007.