The dollar fell against the euro on Thursday, its fifth straight daily decline, after a weaker-than-expected US durable goods report boosted the case for more Federal Reserve interest rate cuts next year.
The assassination of Pakistani opposition leader Benazir Bhutto also unsettled investors, lifting safe-haven assets such as gold and the Swiss franc and adding to dollar selling.
Analysts said holiday-thinned trade was exaggerating the moves, though concern about the US economy was feeding renewed negative dollar sentiment.
The biggest blow for the dollar came from a report showing orders for US durable goods, such as computers and appliances, rose by just 0.1 percent in November, well below economists' forecasts.
The report came a day after the S&P/Case-Shiller index showed a record decline in US home prices in October. "The fall in the dollar was in keeping with the tone of the US economic figures," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York.
The news from Pakistan did not help, as investors bought safe-haven assets on fear that Bhutto's death could spark regional instability and civil unrest within Pakistan.
Pakistan's Interior Ministry said paramilitary forces were on "red alert" and were empowered to ensure domestic security.
UBS strategists said in a note to clients that "an easing of market tension and calmer trading conditions will be needed before any reversal of today's moves."
Late afternoon in New York, the euro was at $1.4604, up 0.8 percent on the day for its best level in nearly two weeks and the biggest one-day advance since November 20.
The euro was on track for its fifth straight day of gains versus the greenback. With a 2.0 percent gain for the period, it was the biggest five-day advance since the period ended November 30, 2006. The euro also hit a record high against sterling at 73.40 pence before retreating to 73.22 pence.
The dollar was down 0.6 percent at 113.64 yen, reversing earlier gains that sent it to a seven-week high at 114.65 yen overnight, according to Reuters data. The dollar fell almost 1 percent to 1.1399 Swiss francs, a two-week low and at current prices the biggest one-day drop since November 7. A US report showing consumer confidence edged higher in December did little to alter the negative dollar tone.
"We fear that the major trend against the dollar is about to reassert itself," said Dennis Gartman, independent analyst and author of The Gartman Letter. If the euro holds its gains into 2008, he said he will re-establish short dollar positions.
Earlier this year, the euro surged to just shy of $1.50 as traders built up their bets against the greenback. A corrective dollar rally over the past month, though, has renewed two-way trade, with some saying the market is now poised to push the euro higher again.