The greenback tumbled against the Japanese yen to as low as 86.29, the weakest since July 1995, after penetrating the key daily support at 87.10 (Jan 09' low) on speculation Japanese monetary authorities will tolerate further appreciation of the currency. Euro, aussie and sterling fell sharply versus the Japanese yen from 132.23 to 129.52, from 81.47 to 78.80 and from 146.22 to 142.60 respectively.

Prime Minister Yukio Hatoyama said the yen’s appreciation was due to weakness in the dollar. However, Yukio Hatoyama later in the day indicated that rapid currency moves are not desirable after the dollar fell to the 14-year low of 86.29 against the Japanese yen. Finance Minister Hirohisa Fujii said on Thursday that Japan's government needs to take action on 'abnormal' currency movements. Japan's deputy finance minister Noda has said that he supports the view that a strong dollar is in U.S. interests. He also stated stability in forex moves is desirable and that he would not make any comment on whether currency intervention would be carried out.

U.S. currency fell to a fresh year's low of 0.9910 against the Swiss franc before rebounding strongly to 1.0071 on short-covering together with speculation the Swiss National Bank sold its currency after it climbed to parity with the greenback for a second day. The single currency rebounded strongly from 1.5012 to 1.5135 against Swiss franc. However, the SNB declined to comment on the franc’s drop.

European Central Bank Governing Council member Axel Weber said Germany is on the threshold of a self-sustaining recovery. He also said it was important for policymakers not to defer exit strategies but act at the right time to withdraw support for the economy. The single currency retreated to 1.4959 on profit-taking on Thursday after rallying to a 15-month high of 1.5145 the previous day.

U.S. dollar rebounded against European and commodity currencies after Dubai’s attempt to reschedule its debt spurred investors to seek the safety of assets perceived to be lower risk. The British pound, Australian dollar and New Zealand dollar tumbled versus U.S. currency from 1.6726 to 1.6466, from 0.9324 to 0.9094 and from 0.7332 to 0.7129 respectively.

Friday will see the release of Japan household spending, CPI, unemployment rate, German import price index, eurozone business climate, economic sentiment, Switzerland KOF indicator and Canada current account.