The dollar climbed on Monday as proposed sweeping cuts in the US federal budget contributed to a growing view among market analysts that the worst of the US "twin" budget and trade deficits may have passed, at least for now. Against the rising dollar, the euro suffered its steepest single-day decline since the first week of January, slipping through several key chart levels and falling to a three-month low of around $1.2731, according to Reuters data. The euro has fallen about 6 percent against the dollar since the start of the year.
"There's a buzz in the air that the trade deficit is going to work out somehow and the fiscal deficit is going to work out somehow," said Steven Englander, chief North American foreign exchange strategist with Barclays Capital in New York.
"The specter of the twin deficits that has been hanging over the US economy is not going to be so much as resolved but mitigated as a dollar negative," he added.
Englander said some US exporters are now hedging against the falling euro. Only a few months ago, European businesses were rushing to hedge against the falling dollar.
US President George W. Bush submitted a proposal to Congress that forecast a narrowing in the budget deficit to 1.7 percent of gross domestic product by fiscal year 2008 from 3.5 percent in the current fiscal year. However, that forecast does not include the costs of military action in Iraq or Bush's plan to overhaul Social Security.
The gist of Bush's budget proposal had already been leaked to the press and subsequently priced into the market, analysts said. But the austere budget, combined with recent comments from Federal Reserve Chairman Alan Greenspan on the US current account, appeared to augur a less ominous outlook on the dollar.
The Fed chief gave a boost to the dollar when he said on Friday that "the voice of fiscal restraint," along with market forces, are helping in the long run to narrow the US current account gap, which is running at near 6 percent of gross domestic product.

The current account deficit - a broad measure of the nation's global trade - has been a persistent weight on the dollar. Traders caution that it could once more push the currency back into its long-running decline and are closely focused on the release of the US December trade data on Thursday.
Late in New York, the euro was at $1.2754, down 0.9 percent from late on Friday. The dollar rose more than 1 percent against the Swiss franc to its highest level since late October, at 1.2262 francs, before trading at 1.2238 francs.
The dollar gained against the yen to trade at 104.82 yen up 0.7 percent, partially on relief that a weekend meeting of the G7 richest countries resulted in no new developments regarding China.