The yen fell against the dollar and the euro as a rally in Asian and European stocks encouraged investors to step up purchases of higher-yielding assets financed with the Japanese currency.
The yen also weakened versus Australia's dollar on expectations the Reserve Bank of Australia will cut interest rates tomorrow to sustain economic growth.
``We're seeing a bit of risk appetite returning as things stabilize and I wouldn't be surprised to see the yen even lower,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the most accurate forecaster in a 2007 Bloomberg survey. ``We should see lower-yielding currencies coming under some more pressure.''
Economists forecast the Reserve Bank of Australia will cut its benchmark interest rate by a half-percentage point to 5.5 percent tomorrow, after policy makers in the U.S., Japan and China announced reductions last week.
The Federal Reserve lowered its target rate to 1 percent last week, matching a half-century low, after a government report showed the U.S. economy contracted by the most since 2001 in the third quarter. Futures on the Chicago Board of Trade indicate a 55 percent probability the Fed will reduce the target rate to 0.5 percent at its Dec. 16 meeting. The odds a week ago were zero.
Gains by the euro and pound may be muted on speculation the European Central Bank and the Bank of England will reduce their key interest rates by a half-percentage point to 3.25 percent and 4 percent, respectively, at policy meetings on Nov. 6, according to surveys of economists. The euro-area economy probably entered a recession in the third quarter and will grow 0.1 percent next year, the worst performance since 1993, the European Commission said today.
The dollar fell for the first time in three days against the euro on speculation slowing growth in the world's largest economy will support the case for the Fed to cut interest rates.
The Institute for Supply Management's factory index, scheduled for release at 10 a.m. in New York, declined to 41.5 in October from 43.5 the previous month. A Labor Department report on Nov. 7 will probably show payrolls fell for a 10th straight month in October, a separate survey showed.
Democratic presidential nominee Barack Obama holds a 54 percent to 43 percent lead among likely voters over Republican candidate John McCain in the presidential campaign, according to a Washington Post-ABC News tracking poll.
``With the result largely priced in, we are not expecting a significant impact on the currency markets,'' Geoff Kendrick, a senior currency strategist in London at UBS, wrote in a research note today.