The dollar dipped to a 15-year low against a basket of currencies on Monday and hovered near a record low against the euro as investors shrugged of more gripes about the single currency's strength from French officials.
Activity was subdued with financial markets in Tokyo, Asia's top currency trading centre, closed for a national holiday. Markets in South Korea and Taiwan were also shut for holidays. Market players are keeping a close eye on whether the dollar breaks the all-time low of 78.19 struck on its trade-weighted index in 1992, a level that analysts said would provide a key test of whether the US currency's sell-off deepens or pauses.
The dollar index slipped to a 15-year low of 78.398 and was down 0.1 percent from late US trade on Friday at 78.480. "It's a general sentiment continuation of dollar weakness," said a senior currency trader at a European bank in Singapore.
The retreat in the dollar index came as the euro edged up slightly to $1.4100 and climbed as high as $1.4118, just shy of the record peak of $1.4121 hit on Friday on trading platform EBS.
The Federal Reserve's 50-basis point cut in overnight rates last week to 4.75 percent stirred expectations for even more monetary easing that would erode the dollar's interest rate appeal compared with the euro and higher-yielding currencies.
The euro's climb to an all-time high above $1.41 has stirred worries about its potential hit to European exports and prompted more criticism of the European Central Bank by the government of French President Nicolas Sarkozy.
His close aide said the euro's strength against the dollar and yuan was eroding the competitiveness and productivity of companies and the French government could not "stay silent in the face of this absurdity".
ECB President Jean-Claude Trichet brushed aside the criticism by calling it an outdated debate, saying the central bank's first mandate was to ensure price stability.
"Trichet is not going to let these comments undermine ECB independence. Hence the market will continue to pay little, if any, attention on politicians' comments regarding the euro," said Sharada Selvanathan, a currency strategist at BNP Paribas in Hong Kong.
France's latest volley at the ECB came as the head of Germany's BDI industry group, Juergen Thumann, called the euro's rise against the dollar "alarming". Against the yen, the euro dipped 0.3 percent to 162.30 yen, near a six-week high of 162.84 yen struck on Friday.
Reflecting the euro's broad-rise, the currency's trade-weighted index has gained 1.7 percent so far in September and is poised for its biggest monthly rise since 1-1/2 years.
The dollar shed 0.3 percent to 115.10 yen but has rebounded from a low of 113.98 yen last week as the Japanese currency suffers from investors using it as a cheap source of funds to buy higher-yielding currencies in the carry trade. Japanese investors have also remained steady buyers of foreign assets via mutual funds.
High-yielding currencies like the Australian and New Zealand dollars were given a shot in the arm as the Fed's aggressive rate cut spurred hopes the US economic slowdown won't be very deep and drove investors back to riskier assets.
Those Asian equity markets open on Monday posted solid gains, helping lift the MSCI Asia ex-Japan index 0.9 percent to a lifetime high. Analysts said there would likely be little market reaction to Japan's ruling party picking Yasuo Fukuda to be the next prime minister, taking over after Shinzo Abe's sudden resignation earlier in the month.
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