The euro may rise against the dollar on speculation US assets will underperform, diminishing the appeal of the currency as a refuse from the financial turmoil, Citigroup said.
Citigroup foreign exchange analysts said in a report that the euro-dollar was close to a bottom and look for a tactical bounce.
Meanwhile, the yen rose a third day against the dollar and to a two-week high versus the euro as stocks fell and speculation a report will show a drop in US manufacturing stoked demand for the Japanese currency as a refuge.
The yen strengthened to 89.91 against the dollar in London. It advanced to 113.31 per euro and traded at 113.21, the strongest since January 23. Europe's single currency fell as low as $1.2706, the weakest since December 5, before trading at $1.2741.
The pound fell against the dollar for the first day in six and gilt yields declined on speculation the Bank of England will cut interest rates this week as the recession deepens. The pound dropped against all 16 major currencies. "The pound is vulnerable to an additional loss of yield support," said David Powell, currency strategist at Bank of America in London.
The pound slid two per cent to $1.4243 in London, from $1.4540 last week. It dropped to 89.50 pence per euro, from 88.12 pence.
In Asia, most currencies declined with the South Korean won nearing its lowest level this year.