The dollar hit a record low against the euro on Monday as traders seized on Group of Seven finance officials' apparent indifference toward dollar weakness as a cue to dump the ailing greenback.
The dollar fell after G7 officials made no explicit reference to the U.S. currency's weakness in a statement issued after their meeting in Washington on Friday, sagging to a record low against a basket of major currencies.
There were some fears that somehow the G7 was going to mention dollar weakness but this was not the case and this gave the green light for dollar selling, said Chris Turner, head of FX strategy at ING.
He added that comments from Bundesbank president Axel Weber in a German newspaper on Sunday that inflation may hit 3 percent by year-end has supported the case for a euro zone interest rate hike, in contrast with prospects for a cut in the United States.
At 0745 GMT, the euro was up 0.2 percent to $1.4335, a little below the $1.4348 all-time high since the single European currency was launched in 1999, set earlier in the session.
The yen pushed higher as Asian equities fell after Friday's slide in U.S. shares, fuelling risk aversion and worries about the unwinding of risky carry trades.
At one point the Japanese currency climbed more than 1 yen against the dollar from levels late last week and touched a six- week high versus the dollar.
But it shed some gains as Asian stocks came off lows and as investors booked some profits, and was last up 0.4 percent against the dollar at 114.01 yen.
European stocks fell sharply in early trade mirroring action in late Friday U.S. trading and tumbling Asian equities demonstrating increased risk aversion.
This tarnished the appeal of high yielding currencies like the Australian and New Zealand dollars, which both fell.
Soft equity markets and last week's poor U.S. data have risk appetite on the back foot and this is likely to dominate this week. AUD/JPY, NZD/JPY and GBP/JPY look particularly vulnerable to a correction lower, wrote analysts at RBS Global Banking in a research note on Monday.
The U.S. dollar index, which measures the dollar's value against those of major trading partners, hit a record low of 77.093 on Monday before recovering to 77.290.
Market players expect the dollar to stay weak on the growing view that the Federal Reserve will cut interest rates this month, as weak earnings among U.S. banks and corporations and a suffering housing market point to an economic slowdown.
In a post-meeting communique on Friday, the G7 rich nations called on China to let its yuan currency rise in value more quickly, but made no reference to the weakness in the U.S. dollar.
U.S. Treasury Secretary Henry Paulson repeated his belief in a strong dollar policy, but few traders said this was having a notable impact on trading.
In a quiet day for data, investors will look to comments from policymakers for further clues on the timing for moves in monetary policy.
Among speakers today are Washington Federal Reserve Governor Randall Kroszner at 1215 GMT and Federal Reserve Bank of Chicago President Charles Evans at 2300.