The dollar slid to a record low against a basket of major currencies on Monday, weighed down by expectations of a Federal Reserve interest rate cut this week and perhaps another move by the end of the year.
The dollar's woes helped to drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high above $794 an ounce, boosting the Australian dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.
The Fed is widely forecast to cut rates by a quarter percentage point to 4.5 percent on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market's downturn.
The likelihood of lower U.S. rates sent investors away from U.S. assets and into other currencies, particularly European currencies and those of commodity producers such as the Australian and Canadian dollars.
It's all about the Fed, of course. We are not surprised that we are trading around these levels, said John Hydeskov, senior analyst at Danske Bank in Copenhagen.
Our models based on oil, stocks, stock volatility and rates suggest that we could see much higher levels, around $1.47. But to the extent that we've taken a really, really long rally now, we would not be surprised if we see some profit taking around $1.45, he added.
Danske, which entered a long euro/dollar trade on October 10 at $1.4115, raised the target on its position for the third time on Monday, to $1.4510.
The euro rose to $1.4438, according to Reuters data, the highest since its 1999 launch and taking its year-to-date gains to nearly 10 percent.
The common currency's jump above $1.44 triggered a wave of buying orders tied to option positions and sparked broad dollar selling as a result.
The dollar index, which tracks the greenback's progress versus a basket of six major currencies, fell to 76.777 -- the lowest in the index's more than 30 year history.
U.S. economic data due this week includes snapshots on manufacturing and employment that will show the extent to which growth is suffering and shed light on how much further the Fed may lower rates.
Taken together, the data this week will do little to dissuade markets from the view that the Fed will cut rates further over coming months nor will it provide much support for the dollar, which appears set to test $1.45 against the euro over the coming days, Calyon said in a research note.
SCANDIES, COMMODITY FX THRIVE
The dollar was little changed near 114.20 yen but held off a six-week low of 113.23 yen as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in the risky carry trade.
The high-yielding Australian dollar vaulted as high as US$0.9272, the highest since 1984. Against the Canadian dollar, the greenback slid as low as C$0.9580, a 33-year low.
For the Australian dollar, higher gold prices are a positive factor along with expectations of a Reserve Bank of Australia rate rise next month. For the Canadian dollar, the oil price surge is seen as a boon for the energy-exporting nation.
The U.S. currency also hit 15-year lows against the Swedish crown and 26-year lows versus the Norwegian crown.
Sweden's Riksbank is seen raising rates to 4.0 percent on Tuesday. Norges Bank also meets this week, but is not expected to tighten policy until December.
Trading activity was relatively subdued with few major items of data or speakers on Monday before this week's events, which also feature a Bank of Japan policy meeting and its twice-yearly report on the economic and price outlook on Wednesday.
The BOJ is widely expected to keep rates on hold at 0.5 percent in the next few months.