The Dollar fell against the Euro on Monday as record euro-zone inflation supported expectations of a European Central Bank interest rate hike next month. Euro zone inflation rose to a record high of 3.7% in May, prompting hawkish comments from ECB member, who on Monday said stabilizing inflation in the medium term was a priority. Analysts said the surge in May's annual euro-zone inflation suggested that a July ECB rate hike was almost certain. An ECB interest rate increase would further enhance the appeal of the Euro at the expense of the Dollar.

A $2.8 bio quarterly loss from investment bank Lehman Brothers, an unexpectedly steep contraction in New York state manufacturing and another dose of inflation-busting talk from an ECB official also weighted on the US currency. Lehman's quarterly loss, while in line with market expectations, served as a reminder to investors that the credit crisis was still far from over.

EurUsd raced to a session high of 1.5519, pushing further away from Friday's one-month low 1.5304. It last traded at 1.5466 up 0.52%. UsdJpy was fairly unchanged at 108.22. UsdChf went 0.21% lower at 1.0447. GbpUsd rose 0.82% to 1.9629 after having hit 1.9410 last Friday. EurJpy climbed to a session high of 167.68, its highest level since October and was last trading at 167.36 yen, up 0.55%.