The dollar sank to fresh record lows beyond $1.40 per euro on Thursday, weighed down by a hefty U.S. interest rate cut earlier this week and expectations of more moves to come.
The breach of the psychologically key $1.40 level -- heralded as a pain barrier for euro zone exporters -- came in early European trade, with the move taking out key stop-loss and option trading barriers and fuelling a broad-based euro rally.
The single European currency also rose above 70 pence for the first time in 1-1/2 years.
The U.S. Federal Reserve slashed interest rates by 50 basis points last Tuesday to 4.75 percent in a bid to shield the U.S. economy from a deepening housing slump and credit market turbulence. Fed Chairman Ben Bernanke speaks at 1400 GMT.
Investors expect more Fed cuts in the months to come while rhetoric from the European Central Bank suggests it could resume raising rates once calm return to financial markets.
As long as the market is focused on rate cut expectations from the Fed, the dollar will stay on the defensive, said Carole Laulhere, currency strategist at Societe Generale in Paris.
We are not massively negative (on the dollar) versus the euro because we are already at very high levels, but we think we will stay over $1.40 in the weeks ahead.
By 0718 GMT, the euro had risen to its highest levels since the launch of the single European currency in 1999. It hit all-time highs of $1.4040, up 0.4 percent on the day. The yen was up 0.4 percent at 115.52 per dollar.
The dollar also set 15-year lows against a basket of six major currencies, at 78.945. A move below 78.190 would take the dollar index to record lows.
On the flip side, the Australian and New Zealand dollars rallied broadly, as the Fed rate calmed risk aversion.
This made investors more willing to return to risky carry trades where purchases of high-yielding Antipodean currencies are funded by cheap borrowing in low-yielders such as the yen.
One high yielder which did not really benefit from stronger risk appetite though was sterling, which has been hit in recent days by worries over the health of the UK financial services and housing sectors and growing expectations of rate cuts from the Bank of England.
The euro rose as high as 70.06 pence, breaching the key 70 level for the first time since April 2006. On a trade-weighted basis, sterling opened at a fresh one-year low of 101.6.
CENTRAL BANKERS GALORE
BoE Governor Mervyn King and other policymakers are due to testify to Britain's Treasury Committee at 0845 GMT.
They could face questions over the BoE's U-turn on Wednesday in announcing a longer-term injection of cash into the tightly squeezed money markets and widening the range of collateral they are prepared to accept from other banks.
King had earlier resisted such moves, saying it was not the bank's job to rescue investors from bad decisions.
If the meeting underlines clear tensions between policymakers at the bank and at the Treasury, the negative sentiment evident on sterling may persist for a while longer, Calyon said in a research note.
A busy day for global central banker speeches also features public appearances by Bank of Japan Governor Toshihiko Fukui and ECB President Jean-Claude Trichet.
The main focus though will be on the Fed's Bernanke, who is scheduled to testify on problems in the high-risk subprime mortgage sector before a congressional committee.