The single currency tanked against dollar on Wednesday, as stock markets tumbled on worries about global economic recovery, prompting investors to buy safe-haven assets.

The single currency fell sharply from 1.3186 in Asia due to renewed cross selling in euro (eur/jpy tumbled from 112.61 to 109.61) after Tuesday's NY rally from 1.3074 to 1.3228 and tumbled to 1.2989 on renewed risk aversion due to the sharp fall in global stock markets. Later, although euro staged a minor recovery from there on short-covering after the release of U.S. trade deficit, euro extended its selloff on worries about global economy and steep losses in stocks spurred safe-haven demand for the greenback, eur/usd hit an intra-day low of 1.2860 in late NY trading session.

The global stock markets fell sharply on Wednesday and DJI fell by 265 points, or 2.49% to 10378. FTSE-100, CAC-40 and DAX sank by 2.44%, 2.74% and 2.10% respectively. Nikkei-225 also tumbled by 2.70%.

U.S. trade deficit in June rose to 49.90 billion, the highest since October 2008, versus the expectations of 42.00 billion deficit.

The greenback traded under pressure in Asia on risk aversion due to the selloff in Asian equities following the previous session's slump from 86.25 to 85.17 and dropped to 84.98 in European morning. Later, although dollar staged a minor recovery after Japanese Finance Minister Yoshihiko Noda said he was watching foreign exchange moves extremely carefully but would not comment on possible intervention, the pair then fell briefly to a 15-year low of 84.72 due to the selloff in European and U.S. equities before recovering to 85.46 on short-covering.

Active cross buying in yen pressure the greenback, as aud/jpy and gbp/jpy sank from 78.04 to 76.45 and from 135.52 to 132.85.

Earlier in Asia, the greenback was also under pressured, as China's lower-than-expected industrial production sparked off massive wave of risk aversion activities.

In addition, The New York Federal Reserve said it would buy about 18 billion of Treasury debt in nine operations from August 17 through September 13. The Fed move was aimed at jump-starting a slowing economy and averting deflation.

Japanese Vice Banking Minister Kohei Otsuka said that 'forex rates are at critical juncture now and BOJ will need to act if forex moves have big impact on economy. Forex intervention from Tokyo would have little effect on currency markets and BOJ must work together to prevent rapid yen rise from deepening deflation.'

The British pound fell in Australia and dropped to 1.5770 in Asia on renewed dollar's strength elsewhere except versus the Japanese yen together with the weak U.K. consumer confidence. Later, the British pound fell further to 1.5667 after the release of BOE's quarterly inflation report and then weakened to an intra-day low of 1.5628 in NY morning before stabilising.

The Bank of England said in the report that British inflation would fall to well below its 2% target in two years, even if interest rates remained at their record low. The BOE noted that the prospects were 'highly uncertain' and it was ready to move policy in either direction.

On economic front, U.K. Nationwide consumer confidence in July fell to 56 versus the forecast of 61. U.K. claimant count came in at -3,800 versus the economists' forecast of -16,500, the smallest fall since January. U.K. ILO unemployment rate was 7.8% as widely expected.

Economic data to be released on Thursday include: Australia Employment change, Unemployment rate, Japan Capacity utilisation, Industrial prod'n, Consumer confidence, EU ECB Monthly Report, Industrial prod'n, U.S. Jobless claims, Export price index, Import price index.