The dollar slid nearly 1 per cent against the yen, euro and Swiss franc today as Japanese data highlighted the continued imbalance between Asian trade surpluses and US deficits.
Japan's current account surplus - the broadest measure of trade in goods and services - rose 35.1 per cent in December from a year earlier to a record 1.616 trillion yen.
This was much bigger than the forecast 4.5 per cent rise and underlined the argument for a weaker dollar, particularly after data last week showed the US trade deficit hit a record $617.7 billion in 2004, swelling 25 per cent from the prior year.
A decline in the dollar is expected to play an important role in any correction of the United States' huge current account deficit. The dollar was down 0.9 per cent against the yen at 104.75 and 1 per cent lower at 1.1980 Swiss francs at 9 a.m.
The euro also profited from the dollar's tumble, rising 0.85 per cent to $1.2970. Technical factors and hawkish comments from European Central Bank members also boosted the single currency.
ECB Vice President Mr Lucas Papademos said the risks to price stability had increased recently and the bank was ready to act if economic recovery added to these pressures.
However, many dealers were reluctant to sell the dollar aggressively before a much anticipated speech by Federal Reserve Chairman Mr Alan Greenspan later in the week.
Mr Greenspan will give twice-yearly testimony on monetary policy to the Senate on Wednesday and the House of Representatives on Thursday. The Fed chief is expected to say additional, steady interest-rate rises are on the way.
But more important for currency markets is whether Mr Greenspan again gives another optimistic spin to the US current account deficit outlook. Before the Greenspan speech, the market will also focus on Tuesday's release of US capital flows in December to see how well the country was funding its current account deficit.