The dollar was at three-month highs against the euro, with further gains expected this week after Federal Reserve chairman Mr Alan Greenspan said on Friday that the US current account deficit should stabilise.
At 10.20 a.m. today, the euro was trading at $1.2846, down from $1.2856, and £0.6872 up from £0.6855.
Speaking at a conference in London, Mr Greenspan said market pressures "appear poised to stabilise and over the longer run possibly to decrease the US current account deficit and its attendant financing requirements".
"Greenspan has set out the process via which the US current account deficit can diffuse in a benign fashion - ie absent any collapse in the dollar or US recession," said HBOS currency analyst Mr Steve Pearson.
With the focus on possible improvement in the US deficits, the release later today of the US administration's proposed budget for the 2006 fiscal year will be closely watched.
Confirmation of a tight budget proposal will provide the dollar with further support, as will Thursday's trade data if, as expected, it shows a substantial improvement in the December trade deficit, analysts said.
Investors were also relieved the weekend's G7 meeting produced no surprises, and although Friday's US payrolls data came in below expectations it was sufficiently strong to suggest US interest rates will continue rising.
On currencies, the G7 communique was much the same as the last one, reiterating the call for greater currency flexibility, but without giving any firm timetable for China to move away from its policy of pegging the yuan to the dollar.