The euro and yen climbed to a seventh-month peak against the dollar on Monday as investors, worried about the slowdown in China, reversed riskier bets in so-called "carry trades" and bought back the low-interest rate currencies used to fund those assets. Ultra-low interest rates in the euro zone and Japan have prompted investors to borrow in euros and yen to purchase currencies that provide higher returns, typically commodity currencies such as the Australian and New Zealand dollars.
In times of financial stress, investors sell those higher-yielding currencies and flock back to the euro and yen, with both benefiting from an unwinding of those carry trades. The dollar index, meanwhile, which measures the greenback's performance against a basket of six major currencies, fell to 92.621, its lowest in seven months as investors reduced expectations of a rate hike by the Federal Reserve in September.
In mid-morning trading, the euro jumped to $1.1711, its highest level since mid-January. It last stood at $1.1663, up 2.4 percent, on the day, with its sustained rise in the past few weeks likely to cause unease within the European Central Bank. The dollar dropped as low as 116.47 yen, its lowest in seven months and last changed hands at 117.30 yen, down 3.8 percent.