The U.S. dollar fell to an all-time low against the euro, which touched US$1.3646 in thin year-end trading.
The shared European currency hit a record high against the dollar for the fifth straight business day on Wednesday, rising above the previous record of US$1.3643 set Tuesday, as light trading around the Christmas and New Year's holidays exaggerated currency swings in foreign exchange markets.
The U.S. currency recovered ground in later trading, with the euro sliding back to US$1.3571.
The dollar strengthened against the Japanese yen in Asian trading. It bought 103.22 yen at the end of Tokyo trading, up 0.16 yen from late Tuesday in Tokyo and above its late Tuesday level of 103.03 yen in New York. Late Wednesday in Europe, the dollar bought 104.09 yen.
The dollar has been weighed down by worries over the ballooning U.S. trade and budget deficit.
With no short-term fix for the deficits in sight, many analysts expect the dollar to continue weakening, and some have predicted a euro level of US$1.40 or higher by the end of 2005.
The 12-nation euro initially fell against the dollar after its 1999 debut, but it has risen about 66 percent since bottoming out at 82 U.S. cents in October 2000.
Though Washington professes a "strong dollar" policy, most analysts believe the U.S. government is content to see the dollar fall because it makes U.S. exports cheaper and can help export-dependent sectors of the economy.
European officials fear the stronger euro could hurt their region's economy by making exports more expensive. On the other hand, it helps cool inflation by making imports cheaper -- particularly oil, which is priced in dollars.
In an article for Thursday's edition of the business daily Handelsblatt, German Chancellor Gerhard Schroeder said the economic outlook for 2005 was "promising," but signaled concern over the dollar's weakness.
"A stabilization of the exchange rate system requires above all the balancing of existing global economic imbalances, whose causes do not lie in Europe," he wrote.