The dollar rose to a four-week high against the yen after Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised.
The greenback also climbed to two-week highs versus the euro and the Swiss franc as Paulson said he expects Congress to approve a rescue plan for Fannie Mae and Freddie Mac, the two biggest US mortgage-finance companies.
The yen fell to a record low against the euro as stocks climbed, encouraging investors to add to holdings of higher-yielding assets funded in the Japanese currency.
"The view that the worst of the uncertainty and bad news may be behind us has reinvigorated risk appetite," said Derek Halpenny, head of currency research in London at Bank of Tokyo- Mitsubishi. "We are on the last leg of the dollar bear market."
The dollar rose to 107.77 yen as of 10.06am in London, from 107.33 in New York yesterday, and traded at 107.86, the highest since June 26. It also appreciated to $1.5745 per euro, from $1.5783 yesterday, and traded at $1.5733. The euro may peak at about $1.62 before falling to $1.48 in a year, Halpenny said.
The yen fell to a record low of 169.96 yen per euro, from 169.43 yesterday, after the MSCI Asia Pacific Index of regional stocks rallied 1.6 per cent on speculation bank earnings will withstand tighter credit markets. "With the markets calming down, shown by the rally in stocks, the yen is becoming particularly weak among major currencies," said Shigetake Nakayama, a manager on the proprietary-trading desk in London at Bank of Tokyo-Mitsubishi, a unit of Japan's second-largest financial group.
"With rates still low, there is no reason to buy the yen." The yen may fall to 108 per dollar today, Nakayama said.
The Chinese yuan fell 0.1 per cent to 6.8304 versus the dollar.