The dollar fell to a record low against the euro and to multi-month troughs versus other currencies on Monday, after strong US employment data last week failed to dispel worries about the bloated US current account deficit. The dollar hit an all-time low of around $1.2986 per euro in late Tokyo trade, after it marked a low of $1.2973 in New York on Friday despite figures showing a surprising increase in the number of new US jobs created in October.
"The market's moves since Friday confirm that the market is focusing on structural problems rather than cyclical improvements in the US economy," said Kikuko Takeda, market analyst at Bank of Tokyo-Mitsubishi.
The euro fetched around $1.2975, about five percent above its level just a month ago.
Many analysts painted a dim picture for the dollar, saying that a fall to $1.30 was inevitable.
"The euro/dollar's break of $1.30 is only a matter of time," said Naomi Fink, senior currency strategist at BNP Paribas.
"It's just a question of momentum." The dollar was weaker against other currencies. It hit a seven-month low of 105.33 yen and stood at 105.50 yen, slightly off late US levels around 105.60.
"I think it would be a good idea to sell the dollar until it reaches this year's low around 103 yen," said Tokyo-Mitsubishi's Takeda.
The dollar also hit an eight-year low around 1.1766 Swiss francs, while the British pound hit a four-month high of $1.8575.
The dollar's broad weakness stemmed from speculation that it needs to be much weaker or else the ballooning US trade gap with the rest of the world could blow out to unmanageable levels.
The current account - the broadest trade measure since it adds investment flows - hit a record $166.18 billion shortfall in the second quarter.
Worries about the deficit cancelled out signs of an improvement in the US job market.
Friday's data showed non-farm payrolls rose by 337,000 in October - double market forecasts. Traders also said that Japan and euro-zone policy makers were unlikely to step into the currency market to stop the dollar's fall at this stage.
Japan intervened heavily in the market, selling about 35 trillion yen ($332.2 billion) in 2003 through to March 2004. But analysts say Tokyo is unlikely to repeat such a large scale campaign given the Japanese economy is now in much better shape.
Speculation that the European authorities could intervene was kept in check on Monday as traders had been pacified by comments from German Chancellor Gerhard Schroeder late last week.
Schroeder had said that while he found recent euro/dollar levels "worrying", German exporters could manage at current rates.
For now, the dollar's best chance of a rebound in the near term is after the US Federal Reserve's policy meeting on Wednesday, traders said.
The market has already priced in a rate rise of 25 basis points. But if the central bank indicates that it might raise rates in December, that could help the dollar, as higher rates are seen helping to draw more global capital to the United States.
"If the Fed's statement indicates no rate hike in December, there will be another wave of dollar selling," said Takashi Toyahara, forex manager at Nomura Securities.
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