Dollar rallied against euro as a 104-point drop in the Dow Indutrial index (following Friday's 109-point decline) and falling commodity prices decreased demand for higher-yielding assets. Oil prices also dropped $1.93 to $78.57 per barrel. Aud/usd tumbled from 0.9277 to 0.9125 and nzd/usd dropped from 0.7568 to 0.7452 in late New York afternoon.

Earlier in the day, euro rose to another fresh 14-month high of 1.5064 against the dollar on report of Chinese Central Bank would increase its holdings of euro and yen in its currency reserves. Price then retreated after the researcher Zhou Hai said the comments on China FX were his own views. Huge selling pressure emerged when U.S. stocks fell, pushing euro to as low as 1.4845 in late New York session as investors locked in recent gains and speculated that it would be hard for euro to sustain above 1.5000 level versus the greenback. Cross selling in euro versus sterling and yen also weighed on euro with eur/gbp falling sharply from 0.9240 to 0.9096 while eur/jpy tumbled from 138.49 to 136.82.

In Asian morning, the British pound extended last week's decline to 1.6251 versus the U.S. currency in reaction to Friday's worse-than-expected U.K. GDP data and probably due to weekend's statement by the British PM Brown who said in a podcast that 'it would be suicidal to suddenly cut off the government's fiscal stimulus in the economy'. Price then rebounded on short-covering and hit an intra-day high of 1.6396 before retreating in tandem with euro in New York trading. Sterling rebounded against the single currency on speculation that the recent drop has gone too far and too much.

Elsewhere in the market, U.S. Treasury Secretary Timothy Geithner proposed a plan that to keep borrowing costs in 2010 near record-low by boosting sales of 10- and 30- year bonds by 40% over the next year to $600 billion. In addition, a White House official said the Obama administration will send basic principles to Congress soon for dealing with the 'too big to fail' problem among large, non-bank financial firms.

Data to be released on Tuesday include Japan retail sales, Australia CPI, German CPI, import price and U.S. durable goods and new home sales on Tuesday.