The euro fell to fresh five-month lows against the yen in Asia on Thursday and looked set to stay under pressure as worries about the euro zone sovereign debt crisis spread to the region's banking sector.
A storm of market rumours questioning the financial solidity of a major French bank and talk of an impending downgrade of France's credit rating, all denied by authorities, rattled already shaky market confidence.
This saw investors scramble for cover in traditional safe havens including gold and U.S. Treasuries, sending the 10-year U.S. yield hurtling to a record low around 2.04 percent, last seen during the 2008/2009 global financial crisis.
The currency market had a tougher time looking for a safe harbour after the Swiss National Bank took fresh steps to bring down a soaring franc and recent intervention to weaken the yen by Japan remained fresh in investors' mind.
Still, both the yen and Swiss franc remained buoyed, while currency deemed riskier like the Australian dollar came under renewed pressure.
"The market is in a bit of heat-seeking missile mode looking for vulnerabilities around the world, and Europe is obviously in its sights at this point in time," said Grant Turley, senior strategist at ANZ in Sydney.
The euro fell to 108.28 yen , lows not seen since March 17. It also lost ground against the Swiss franc and U.S. dollar, reaching 1.0254 francs and $1.4140 . It was approaching an all-time low around 1.0075 francs set earlier in the week.
These moves gave the dollar a bit of a lift, though investors are reluctant to go long of the currency after the Federal Reserve pledged to keep interest rates near zero for two years and left the door open to adding more stimulus if needed.
The Fed's drastic action of putting a time-frame on its policy has confirmed the dollar's status as the funding currency of choice in carry trades, but further dollar weakness is unlikely to materialise while markets remain highly volatile.
The dollar index , which tracks its performance against a basket of major currency, climbed to 74.908 bouncing well off a low around 73.821 plumbed a day earlier.
Against the yen though, the dollar traded at 76.77 yen , not far from an all-time low around 76.25.
With heightened risk aversion, one trade remains relatively clear: stay away from commodity currencies. The Australian dollar sagged to $1.0147, having shed more than two U.S. cents from Tuesday's high of $1.0391.
"AUD/USD looks magnetised by parity to me and can weaken sharply on further fears of global slowdown," said Kit Juckes, strategist at Societe Generale.
Employment data due at 0130 GMT could provide Aussie bears with fresh ammunition if it surprises on the downside. Analysts polled by Reuters expect the economy to have created a modest 10,000 jobs in July. (Editing by Wayne Cole)