Japan's currency also weakened on speculation the Bank of Japan will reduce borrowing costs tomorrow. The dollar dropped the most in a decade against South Korea's won and declined versus the currencies of Brazil, Mexico and Singapore after the Federal Reserve agreed to provide $30 billion to each of the countries yesterday.
The yen dropped 1.1 percent to 98.49 per dollar at 4:12 p.m. in New York, from 97.39 yesterday. The euro rose 0.9 percent to 127.34 yen from 126.26, gaining about 9 percent in the past three days. The dollar advanced 0.3 percent to $1.2928 per euro from $1.2963, after falling to $1.3292, the weakest level since Oct. 21.
The dollar gained against the euro on speculation foreign investors in U.S. stocks bought the greenback at the end of the month to keep their currency hedge ratios constant, according to Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. The Standard & Poor's 500 Index is down more than 18 percent in October.
The yen depreciated 3.2 percent to 67.15 versus the Australian dollar and 2.2 percent to 58.24 against the New Zealand dollar as a 2.6 percent gain in the S&P 500 today encouraged investors to resume carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher. Interest rates are 0.5 percent in Japan, 5.5 percentage points lower than in Australia.
The euro is set for biggest monthly decline against the yen and the dollar since its debut in 1999 as investors sought protection from deepening credit market losses and a global stock market rout. The single currency has dropped 15 percent versus the yen in October and 8 percent against the dollar. The greenback is down 7 percent against the yen, the biggest decline since 1998, when hedge fund Long-Term Capital Management LP collapsed.
The Australian dollar rose 0.2 percent to 66.96 U.S. cents on speculation a rate cut in China, the world's largest consumer of industrial metals, will boost demand for Australia's exports.