The greenback fell versus the Japanese yen on Wednesday on renewed risk aversion due to growing worries about the ailing U.S. auto industry and deflation fears on the back of a record slide in U.S. consumer prices. The U.S. consumer price index fell by 1.0% in October (the largest decrease on record), adding not only to fears of a deeper recession but also concerns about deflation. The minutes from the Federal Reserve's last policy meeting showed policymakers saw deflation risks even after the central bank's recent half point rate cut. Federal Reserve policy makers predicted last month that the U.S. economy will contract through the middle of 2009, with some prepared to cut interest rates further in response.

Federal Reserve Vice Chairman Donald Kohn also warned against deflation on Wednesday, saying the risk has risen in recent months and policy-makers should be vigilant to ensure the phenomenon does not become sustained.

The single currency rose briefly to 1.2815 in U.S. morning on initial rise in U.S. stock markets and then tumbled to 1.2484 due to the late selloff in equities. Euro, aussie and sterling fell sharply against the Japanese yen from 124.30 to 119.50, from 63.86 to 60.99 and from 147.87 to 143.26 respectively.

The British pound rose to 1.5249 after triggering sizeable stops at 1.5100 despite minutes from this month's Bank of England policy meeting showing policy-makers unanimously agreed to cut interest rates by 150 basis points and even discussed a bigger cut. Governor Mervyn King and his colleagues voted 9-0 to lower the rate to 3% from 4.5% and a cut to less than 2.5% was discussed at the Monetary Policy Committee's meeting. Cable fell sharply to around 1.4950 in late U.S. session on active cross unwinding especially versus the Japanese yen due to the selloff in global stock markets.

Dow Jones industrial average index tumbled by 426.99 points or 5.07% to close below 8000 level at 7997.28, the first time since March 2003. The Standard & Poor’s 500 index fell by 52.18 points or 6.07% to end at 806.94. The Nasdaq Composite index plunged by 96.85 points or 6.53% to finish at 1386.42.

Thursday will see the release of Japan’s trade balance, German PPI, U.K. PSNCR and retail sales, U.S. jobless claims, leading indicators and Philadelphia Fed survey.