The dollar fell to a seven-month low versus the yen on Monday and hit a nine-year low against a basket of major currencies, resuming recent weakness due to concerns over the US ability to fund its current account gap. The greenback, which held within half a cent of last week's record low against the euro, shrugged off last week's upbeat US economic data and focused on speculation Washington was happy to see a weaker dollar which would help narrow the deficit.
US Treasury Secretary John Snow stuck to his usual line on Monday, repeating the United States backs a strong dollar but rates are best set in markets. He also said markets are driven by fundamentals and they should determine currency values.
Snow, in Europe to attend a Group of 20 meeting in Berlin this week, is speaking again in Dublin at 1130 GMT. Investors were also keen to hear what euro zone finance ministers meeting later would say, given a recent escalation in opposition against a further euro rise.
"We have the same story of structural problems in the US economy. No end (to the dollar selling pressure) is in sight. It's only a matter of time until the euro reaches $1.30 again," said Carsten Fritsch, currency strategist at Commerzbank.
"There is also a benign neglect towards a strong dollar policy by the US Treasury... If euro zone finance ministers express more serious concerns about euro strength the euro will struggle to overcome $1.30, but that would be a short-term impact."
The dollar had fallen to 105.18 yen, its weakest since April, before trimming losses to 105.44. The yen also drew support from Tokyo stocks, which closed up nearly two percent at a five-week closing high.
The greenback stood at $1.2961 per euro, close to the all-time low of $1.3005 set last week. The dollar index fell to its lowest since November 1995.
"I don't see (Snow) deviating from the same script at all this week," said Daragh Maher, senior currency strategist at Calyon.
Many investors suspect Washington may want to engineer a weaker dollar to fund the deficit despite its official strong dollar policy.
On Friday, a US Treasury official said global financial markets were operating in an "orderly" way, declining to comment on the level or direction of currency movements.
A European bank dealer in Tokyo said: "They keep saying they want to maintain a strong dollar. But that has no meaning whatsoever to the market."
Given doubts about Washington's commitment to a strong dollar, investors keenly awaited a meeting of G20 finance ministers and central bankers later this week in Berlin.
Participants at the meeting include the Group of Seven countries as well as major emerging economies, including China, whose pegging of its currency to the dollar has drawn criticism from some quarters in Washington.
"The focus is on the G20 meeting that will feature most importantly central bankers from Asia," said Mark Austin, chief currency strategist at HSBC. "There might be discussion whether the Asians accept currency appreciation."
Also on Monday, the New York Federal Reserve releases its Empire State manufacturing survey at 1330 GMT.
In Europe, euro zone finance ministers meet in Brussels later. The focus is on whether they would support or escalate warnings from European Central Bank President Jean-Claude Trichet, who said last week recent euro moves were "brutal" and "not welcome".
Analysts say however the tolerance threshold of the euro zone economy to a stronger euro is higher now than earlier this year as oil prices have risen and a higher currency dampens the inflationary pressure from surging energy costs.