The dollar rose to a peak of $1.4908 against the euro in Asian trade, its strongest level since February, and hit a 21-month high of $1.9110 against the pound.
Indeed, the dollar put in its best performance since the 1999 inception of the euro last week after Jean Claude Trichet, president of the European Central Bank, warned of a slowdown in eurozone growth in the coming months.
This destroyed expectations of further interest rates rises in the eurozone, sending the dollar sharply higher against the single currency.
This provided the catalyst for the dollar to break higher from its recent ranges against a raft of currencies, sending the greenback up across the board.
The dollar’s rally ran out of steam during European trading on Monday, however.
Analysts said rising oil prices, sparked by escalating tensions between Russia and Georgia, gave short-term investors an excuse to take profit after the dollar’s sharp rally.
By mid-morning in New York, the dollar eased 0.5 per cent $1.5003 against the euro, lost 0.3 per cent to $1.9174 against the pound and dropped 0.5 per cent to Y109.87 against the yen.
Meanwhile, the dollar also fell 0.4 per cent to SFr1.0800 against the Swiss franc and lost 0.5 per cent to $0.8895 against the Australian dollar.
However, analysts said they expected the dollar’s fall to be short-lived as investors reassessed their longer-term attitude towards the greenback.