The dollar sagged against major European currencies on Monday, pushed down after its inability in the last three weeks to hit new highs against the euro triggered a bout of profit-taking.
Market talk early in the session that central banks were bidding for euros below $1.17 also helped to lift the euro zone currency to a session high above $1.18, after triggering automatic buy orders around $1.1750 and $1.1790, dealers said.
"When you have a catalyst like today, the recovery tends to be much quicker and sharper than the decline because people are getting stopped out," said Richard Franulovich, senior currency strategist with Westpac Bank.
"They are just being forced into that position by the price action," he said.
By late afternoon in New York, the euro had settled at $1.1792, up 0.6 percent compared with late Friday, after a mix of hedge fund and institutional investors unsuccessfully tried to push it below initial chart support at $1.1680, traders said.
Firm support for the euro looms at $1.1640, the year's low.
The dollar fell 0.8 percent against the Swiss franc to 1.3066 francs.
The euro's gains were strongest against the yen, which suffered broadly after Japanese Finance Minister Sadakazu Tanigaki said after a Group of Seven meeting over the weekend that the yen's fall against the dollar reflected economic fundamentals.
According to Reuters data, the euro rose to 142.73 yen, up more than 1 percent, and the highest since the euro's inception in 1999.
The dollar climbed to around 121.40 yen, its highest since March 2003, before easing to 120.80 yen, up 0.2 percent.
"The yen is still soft across the board and I think interest rate differentials are still the driver there," said Shaun Osborne, chief currency strategist at Scotia Capital in Toronto.
The Bank of Japan has adopted an ultra-accomodative monetary policy for the last several years and is seen keeping overnight rates near zero for an extended period.
That is helping to keep the yield spread of two-year US Treasury debt over Japanese government paper at the widest in about four and a half years.
Analysts attributed the dollar's losses against other currencies to profit-taking after it posted sharp gains in recent sessions.
But they said the greenback's bullish trend remains intact, adding that interest rate differentials continue to be the market's focus.
However, currencies carrying the promise of further rate hikes were performing well against the dollar.
With the Bank of Canada widely expected to raise interest rates at its next three meetings, including one on Tuesday, the US dollar slipped to 14-year lows at C$1.1551.
The New Zealand dollar hit a near seven-month high of $0.7200, helped by expectations that the Royal Bank of New Zealand will issue a hawkish statement after it meets on Thursday.
Officials from Australia's central bank and the Bank of England will also meet this week.
Sterling rose to a three-week high against the dollar at $1.7443, according to Reuters data, despite British Chancellor Gordon Brown downgrading Britain's 2005 growth forecast to 1.75 percent on Monday.
"To a large degree, Britain's weaker economic outlook has already been priced in since the August rate cut," said Scotia's Osborne.