Dollar jumps to 2-yr high against euro

The dollar raised to a two-year high against the euro and a lot of  currencies on Wednesday as a worsening global economic outlook prompted more investors to liquidate risky assets.

The yen climbed to a 4-1/2-year high against the euro, with the low-yielding Japanese currency also from the exodus from risky assets.

Analysts said that speculators who had built up investments in high-risk assets, such as those in currencies profiting from higher yields, have been dumping those positions as already weakening global economies are expected to take a further hit as nations try to rescue their banking sectors.

This drove the euro down as far as $1.2740, its lowest since November 2006, while sterling dropped roughly 3 percent to around $1.62, its weakest in five years.

Against currencies belonging to major U.S. trading partners, the dollar climbed to a two-year high of 85.921, before pulling back slightly to 85.550.

"We've moved down to new ranges in euro/dollar and sterling/dollar, and the market has to find a base for these ranges," said Steve Barrow, head of G10 currency research at Standard Bank, pointing out that both pairs had crashed through major support levels.

He added that he hoped that the dollar would probably gain further in the near term.

Struggling sterling

Sterling was the day's biggest losers after falling down when Bank of England Governor Mervyn King said that Britain's economy was probably entering its first recession in 16 years.

Despite the dollar's broad gains, it fell more than a percent to 99.20 yen <JPY=> as the ongoing unwind in carry trades extended the Japanese currency's rally.

The yen has risen up after having suffered for years as low Japanese yields made the currency a prime candidate to fund risky investments in the assets of higher-yielding currencies.

Other high-yields were beaten against the yen, with sterling dropping roughly 4 percent to 160.94 yen, its lowest in nearly eight years, while the Australian and New Zealand dollars each fell roughly 3 percent.