The dollar rose versus the euro and sterling on Monday as investors bought the greenback as a safe haven with stock markets across the globe falling mainly on the news that insurance giant AIG's reported a record loss in the fourth quarter and received an additional $30 billion of U.S. Government funds.
Stocks in Europe fell after European Union leaders rejected Hungary's proposal of a 180 billion euro loan to troubled Eastern European economies, while HSBC's announcement of a plan to raise 12.5 billion pounds in a rights offer also increased concerns over financial institutions.
Euro declined to an intra-day low of 1.2545 and 121.97 versus the dollar and Japanese yen respectively while the British pound weakened below the 1.4000 level against the greenback for the first time since late January. Sterling hit a session low of 1.3958 and 0.9010 against the dollar and euro respectively before recovering to 1.4052 and 0.8948 on short-covering.
Data out of Europe and the U.K. highlighted the worsening economic situation outside of the U.S. with German, European and U.K. manufacturing PMI all coming in below expectations. Although the release of better-than-expected U.S. personal income and spending data later in the day gave a brief boost to the euro, the single currency fell again as U.S equity markets hit new multi-year lows with the Dow falling below the 7000 level to end the day down 299 points at 6763.