"The momentum clearly favours the dollar now, and the market seems willing to latch onto any reason to buy it," said Matthew Strauss, senior strategist at RBC Capital Markets in Toronto. He said reports that Chinese banks were told to curb lending weighed on commodity currencies such as the Australian dollar, which lost 1.8 percent against the greenback.
Analysts said tighter policy may slow China's recovery and hurt commodity and other risky asset demand. Wall Street suffered its worst slide of the new year on the news, while the dollar and yen rose as investors who used the currencies to fund other trades were forced to buy them back.
The euro last changed hands at $1.4100, down 1.4 percent, after earlier hitting $1.4081, a five-month low. Euro losses gained speed after it traded below its 200-day moving average, which was important support against the dollar. The euro is down 1.5 percent this year against the dollar after falling 2.2 percent in the last three months of 2009, and analysts say worries about the finances of the euro zone's weakest economies is the main culprit.
The euro fell 1.2 percent to 128.65 yen, its lowest level in a month, and the dollar rose 0.1 percent to 91.24 yen. The dollar gained 1.2 percent to 1.0438 Swiss francs. The euro fell as low as 86.52 pence, its weakest since late August. Worries about cash-strapped Greece's finances battered the currency on Wednesday as borrowing costs for the troubled euro zone country surged and the Greek government said it was considering all options to raise funds, including selling bonds directly to the public.
Greece's ballooning budget deficit, which hit 12.7 percent of gross domestic product in 2009, has sparked one of the worst fiscal crises in the euro zone since the euro was introduced. Meanwhile, analysts said Tuesday's Massachusetts election result could force legislative compromises in the Senate that would put the brakes on fiscal spending. The US budget deficit swelled to a record $1.4 trillion last year, largely due to the hundreds of billions spent to reignite the US economy after a financial crisis.