The euro also weakened after the European Commission said the region may suffer a substantial” effect from the financial crisis next year. The yen traded near a 13-year high against the dollar even after the Bank of Japan lowered its target lending rate to 0.1 percent.
The dollar climbed 1.8 percent to $1.3985 versus the euro at 7:56 a.m. in New York, from $1.4240 yesterday, when it slumped to a 12-week low of $1.4719. The U.S. currency gained as much as 2.3 percent today, the biggest intraday gain since Oct. 24. The euro fell 2 percent to 124.93 yen from 127.44. The dollar traded at 89.32 yen, compared with 89.43. It dropped to 87.14 yen on Dec. 17, the lowest level since 1995.
The dollar declined 4.3 percent against the euro this week after the Fed lowered its target lending rate on Dec. 16 to a range of zero to 0.25 percent. The Fed reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries.
The nine-day relative strength index of the dollar versus the euro, a comparison of magnitude of gains and losses, was at 21.44 yesterday, below the level of 30 that signals a change in direction may be imminent.