The dollar gave up more ground to the euro, which climbed to within one cent of its all-time high, and the pound neared $2 Monday. Movement against the dollar could drive up the price of exports and tighten the pinch for travelers to Europe just as the tourist season approaches.
Meanwhile, the Japanese yen hit a record low against the euro.
Supported by crackling economic growth, falling jobless figures and interest rates much lower than those in Britain and the United States, the 13-nation euro bought $1.3549 by afternoon in Europe after climbing as high as $1.3576 -- its highest point since January 2005 and near its record of $1.3667 from December 2004.
Kristian Siggaard-Jensen, a foreign exchange strategist with Saxo Bank in Copenhagen, Denmark, said markets had factored in the increases, noting the steady guidance by the European Central Bank and the Bank of England.
"People have been expecting this sort of volatility ... to pick up for some time," he said.
The British pound rose to $1.9938, a 14-year high, on unexpectedly higher prices for manufactured goods and news that the sizzling housing market was not cooling off. Analysts said they expected the currency to cross the $2 mark this week. It later fell back to $1.9920, still less than a penny off of $2 barrier. That compared with $1.9870 on Friday in New York.
"Clearly many are eyeing a test of the key $2 level, something that hasn't been seen since 1992," said David Jones, chief market analyst for CMC Markets in London.
The euro has charged higher against the dollar in recent months as the region's economy improves and jobless figures decline. The high level has drawn some criticism in the past because leads to higher export prices. Germany, Europe's largest economy, is highly dependent on exports.
Yen at All-Time Low Versus Euro
The yen plunged to record troughs against the euro on Monday and fell to its lowest versus the dollar since February as the Group of Seven's failure to address yen weakness encouraged investors to put on carry trades.
The appetite for high-yielding currencies also helped propel sterling to a near 15-year peak above $1.99 as strong British data firmed the view that the Bank of England will again raise interest rates as soon as next month.
G7 finance ministers at a weekend meeting in Washington repeated calls for exchange rates to reflect economic fundamentals and urged greater currency flexibility in China.
They also heralded the strongest period of world growth in three decades.
"The Japanese currency has taken quite a hit across the board since the G7 finance minsters' meeting did not specifically mention yen weakness or carry trades," said Alex Beuzelin, senior market analyst at Ruesch International in Washington.
"So bottom line, it encouraged the markets to add to their carry trade positions. And with deflation a potential concern for Japan, with their rock-bottom yields not expected to move anytime soon, the yen remains the funding vehicle of choice for these carry trades," he added.
Carry trades refer to transactions in which investors borrow funds in low-yielding currencies such as the yen to invest in assets in higher-returning units like sterling.