Gold prices rose to their highest levels since 1990 as investors sought assets that perform well when the dollar is weak.
Ben Bernanke, a governor of the Federal Reserve, said that the risk of a crisis sparked by a rapidly falling dollar was "not zero but quite low", he told the Financial Times.
Inspite of the dollar's slide, there are few signs yet of a panic in financial markets, with bond and stock prices remaining high. It was also in the interests of the US's trading partners to avoid a dollar crisis, Bernanke said.
Currency strategists said categorising the risk of a crisis as low acted as a green light for traders to sell the dollar. "One could characterise US officials' concern, including Mr Bernanke's, for the dollar as benign neglect," said Marvin Barth, global currency economist at Citigroup.
Bernanke also noted that on a trade-weighted basis, the dollar remained above its 1990s average. Measured on this scale, the US currency had fallen just 12% since 2002.
Last year the dollar fell more than 17% against the euro and 10% against the yen.
On Monday the euro reached a record high of $1.2695, while the pound-sterling climbed more than a cent to more than $1.8085 for the first time since 1992, when it crashed out of the European exchange rate mechanism.
The pound has risen by 20 cents against the dollar since September.
"Traders are asking themselves why they should expose themselves to dollar risk when they're looking to bonuses being distributed in the next month or so," said Neil Mellor, currency strategist at Bank of New York.
Even after heavy intervention by the Bank of Japan during Tokyo trading hours to limit the yen's rise, the dollar on Monday fell to a three-year low in European trade at Y106.1.
Gold rose to $424.45 on the spot market, its highest level since February 1990. The metal traditionally trades inversely to the dollar because investors view it as an attractive monetary asset when the dollar's value becomes risky.
"Upward pressure on the gold price is likely to continue through 2004," said Alan Williamson, precious metals analyst at HSBC. He forecast the euro would be worth $1.35 in the third quarter, implying a gold price of about $435 an ounce.