The dollar plunged below 100 yen Thursday for the first time in more than a decade and hit a record low against the euro as worries deepened on Wall Street that the United States had entered a recession.
The dollar approached parity with the Swiss franc for the first time ever, gold hit an all-time high and data showing a surprise drop in U.S. retail sales heightened concern that American consumers were cutting back on spending.
"We are seeing tremendous pressure on the dollar, and if you look at the reasons why the dollar is so unpopular, it's very difficult to see any of those factors changing in the next few months," said Mike Moran, currency strategist at Standard Chartered in New York.
The dollar fell to 99.77 yen, its lowest level since 1995 before easing slightly late in the morning in New York.
So far this year, the dollar has lost nearly 10 percent against the Japanese currency, and the dip below 100 has stirred fear that Japan could intervene to cap yen gains that threaten to cut into corporate profits.
Some traders said that was unlikely as long as the dollar remained above 90 yen, but Moran warned that "we are certainly going to see much louder chatter from various central banks about currencies."
The euro hit a fresh lifetime high at $1.5624 before easing and the dollar fell slightly versus the Swiss francs after plumbing a record low of 1.0047 francs.
"We are certainly in an environment of dollar weakness and even at these levels, dollar buyers can not be found," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.
Fears that a Carlyle Capital Corp bond fund was near collapse after defaulting on $16.6 billion of debt unnerved investors by refocusing attention on worsening credit market turmoil.
And a surprise 0.6 percent decline in U.S. retail sales data stoked recession fears even further by suggesting that U.S. consumers were starting to put their wallets away.
"The slowdown that we know is happening in the banks has manifested itself on Main Street. These economic numbers are going to get much worse," said Joe Francomano, vice president for foreign exchange at Erste Bank in New York.
Fed Cuts Likely, Intervention Less So
The dollar's swoon came two days after the Federal Reserve said it would lend dealers $200 billion in Treasury securities and accept a wider array of mortgage debt as collateral.
But the initial euphoria that met the Fed's attempt to loosen up credit markets has faded, with stocks turning lower and investors bracing for more interest rate cuts at the Fed's March 18 meeting.
The Fed has cut rates to 3 percent since September, while euro zone rates have held rates firm at 4 percent.
ECB officials have expressed concern about excessive exchange rate moves, but some market participants say Japan may be more likely to take active measures to stem the moves.
Japan has a long history of intervening in currency markets but has not done so since 2004, when the economy began pulling out of a decade-long deflationary slump.
However, David Powell, a currency strategist at IDEAglobal, said there is "little global will for intervention" and added that "unilateral moves in Japan are not going to be very effective."
Doing so would also be politically difficult for Tokyo at a time when G7 officials are pressuring China to let the yuan float freely, he said, adding it would take a dollar decline to 90 yen before intervention was seriously considered.
Japanese officials, including Prime Minister Yasuo Fukuda, have said excessive foreign exchange moves were undesirable, though Finance Minister Fukushiro Nukaga added that the latest moves reflected dollar weakness rather than yen strength.