U.S. dollar weakened against the Japanese yen from 92.92 to 90.83 on active cross buying in jpy due to renewed risk aversion as global stock markets continued to decline. Aussie and sterling tumbled from 66.20 to 63.95 and from 140.25 to 137.33 against the Japanese currency respectively.

The single currency rallied to a 3-week high of 1.3801 against the dollar although euro retreated briefly earlier in the day to 1.3534 after the release of much weaker-than-expected German exports in November which showed an unprecedented 10.6% month-on-month versus the expectation of a decrease of 2.8%. European Central Bank President Jean-Claude Trichet said he sees a ‘significant’ worsening in the economic environment and indicated it is clear that we have had a significant deterioration of the real economy.

The British pound rallied to 1.5374 after the Bank of England cut interest rates by 50 basis point as expected to 1.5% from 2.0%. The BOE statement expressed concern about the weak pound's impact on the economy's imports, suggesting the central bank may have to slow the pace of its rate cuts. The single currency fell sharply from 0.9063 to 0.8894 against the sterling.

President-elect Barack Obama on Thursday outlined some measures to ease the pain for the ailing U.S. economy, however, there is little impact on the dollar.

Friday will see the release of Japan’s leading indicators, German retail sales, U.K. industrial and manufacturing production, PPI, eurozone retail sales, U.S. non-farm payrolls, unemployment rate and wholesales inventories. The U.S. unemployment rate is expected to rose 7 percent in December from 6.7% in November. Non-farm payrolls probably may decline by 550,000 last month.