The dollar dropped to a four-and-a-half month low against the euro and slid against most other currencies, too, as investors sought out potentially riskier but better paying bets.
Analysts say a sense that the worst of Japan's nuclear crisis may be over and hopes for a long-term agreement to support Europe's most indebted countries were setting investors against the dollar.
But the dollar gained against the yen in the wake of last week's coordinated currency intervention by the Group of Seven nations to reign in the rising yen.
In late afternoon trading in New York, the euro rose to $1.4226 from $1.4159 late Friday, rising earlier in the day to as high as $1.4242, its strongest level since Nov. 5.
The head of the European Central Bank made another warning about inflation, a signal that the ECB may raise interest rates as soon as next month. The expectation of higher rates tends to support a currency. A higher interest rate in Europe means investors would get a bigger return from assets bought and sold in euros.
Investors also hope a two-day summit of European leaders that starts on Thursday will end in an approval of an expansion of the region's bailout fund, calming worries about the region's most indebted countries.
The British pound gained to $1.6315 from $1.6219, while the dollar fell to 97.85 Canadian cents from 98.61 Canadian cents. The dollar was also lower against most currencies from around the world, including the Scandinavian currencies, currencies in Latin America, the South Korean won and the Australian dollar.
The dollar rose against the yen and the Swiss franc, however. All three currencies are perceived as safe havens by investors, meaning that they tend to gain during periods of geopolitical and financial tension.
The dollar rose to 81.05 Japanese yen from 80.96 yen. The G-7 central banks last week sold yen after a steep jump in its value following a devastating earthquake and tsunami that sparked a nuclear crisis. The climb in the yen threatened to deepen the hit to Japan's economy, as a stronger currency hurts profits of Japan's exporting corporations such as Sony and Toyota.
The dollar also rose to 0.9046 Swiss franc, from 0.9017 Swiss franc.