The US dollar rallied to a fresh 13-month high against the euro today, while the yen surged across the board as fears over bank troubles in Europe mounted and investors shunned riskier assets.
Traders sold the euro, pushing the euro zone's single currency below $1.35 versus the greenback as leaders of Europe's four biggest economies decided against a coordinated bailout plan at a weekend summit and their governments were forced to rescue large banks and protect ordinary depositors.
Risk aversion remained a dominant theme in the currency market, which saw the yen rallying sharply against higher-yielding currencies such as the Australian and New Zealand dollars, as investors unwound so-called carry trades.
The yen was on track for its largest one-day gain versus the dollar since the Asian crisis in 1998, and its best day against the euro since the launch of that currency in 1999.
'Ultimately what's come back to haunt the euro is the fact that the institutional framework in the euro area is not conducive to a quick response to combat the crisis,' an analyst said.
In trading in New York this afternoon, the euro was down 1.8% at $1.3517 after sliding to its lowest since late August 2007 at $1.3474.
Against the yen, the euro was down more than 6% at 136.26 yen, after falling to 135.60 earlier - a three-year low.
