The dollar slid back towards last week's record low against the euro yesterday after a weekend meeting of world finance chiefs ended with no agreement to stem the greenback's decline.
G20 policymakers made no mention of the dollar's slide in a communique issued at the end of their meeting in Berlin, reinforcing the view that major nations have accepted the need for a weaker dollar to correct the United States' trade gap.
The G20's call for more Asian currency flexibility was seen putting more downward pressure on the dollar, but the threat of unilateral action from Japan kept the greenback above Friday's four-and-a-half-year-low against the yen.
"There appears to be an acceptance of a weaker dollar trend even if Europe and Japan are not happy with it," said David Mann, foreign exchange strategist at Standard Chartered. "The Americans are probably only too happy to see the dollar depreciate."
The dollar was little changed at 103.10 yen at 1248 GMT, having fallen below 103 on Friday for the first time since April 2000. Against the euro, the dollar was weaker at $1.3040, moving back within half a cent of record lows hit last Thursday.
"The background remains very dollar-negative but people are already very short of dollars and may be tempted to trim positions," said Ian Gunner, head of foreign exchange research at Mellon Bank.
Analysts said the hands-off approach from G20 policymakers left the dollar vulnerable, particularly after Federal Reserve Chairman Alan Greenspan highlighted the unsustainable nature of the US current account deficit on Friday.
Speaking at a banking conference in Frankfurt, Mr Greenspan warned foreign appetite for US assets would not increase for ever and hinted that the dollar was likely to bear the brunt of readjusting the deficit. "Greenspan's comments on Friday were very significant, but equally significant was the euro's inability to push to new highs against the dollar," said Mr Gunner, noting that market positioning may be starting to slow the dollar's downward momentum.
In the longer term, most analysts are forecasting further losses for the dollar and expect complaints from European and Japanese politicians and exporters to get louder.
Japan has already made clear it is unhappy with the export-damaging strength of the yen and some traders say it may not be long before Japanese authorities step into the market to sell yen for dollars.
Bank of Japan Governor Toshihiko Fukui said in an interview published in the Financial Times newspaper that an appreciation of the yen could be destabilising and become a big concern.
Japan intervened heavily at the start of the year to prevent the yen's strength from derailing its tentative export-led recovery.
"With the dollar trading below the bottom marked in March of 103.40, I'd say intervention could take place any time," said Toshihiro Azuma, forex manager at Sumitomo Trust and Banking Corp.
Many analysts do not expect the European Central Bank to intervene to curb the euro's strength until the single currency reaches $1.35 or even $1.40, but eurozone politicians are already talking tough.
German Chancellor Gerhard Schroeder said on Saturday the euro's rise was "worrying" and blamed the United States for not addressing its budget and current account deficits.
Following Mr Schroeder's critique, US Treasury Secretary John Snow said his country was committed to cutting its record budget deficit in half over the next four years. But in a swipe back at Europe, he said all countries were responsible for boosting growth and correcting trade imbalances.
One of the biggest movers of the day was the Canadian dollar which rose within a whisker of 12-year highs against the greenback after bullish comments from the country's central bank chief.
Speaking in Berlin, Bank of Canada Governor David Dodge said the recent rise in the Canadian dollar was "not inappropriate" and that intervention should only be considered in "extraordinary circumstances."