The euro jumped against the dollar Monday on robust stock market gains that emboldened investors to take positions in currencies considered riskier than the greenback.
The euro in late-day trade was at 1.4217 dollars against 1.4096 late Friday in New York.
The dollar was meanwhile trading at 94.49 yen, up from 94.17 on Friday.
"The US dollar is trading with a weaker tone as equity markets continue to gain ground," said analyst Audrey Childe-Freeman of Brown Brothers Harriman.
At BNP Paribas bank analysts said in a note that "optimism regarding the recovery process has continued to increase, with reports globally suggesting that the worst is over and providing support for the asset market as well as allowing currencies to extend their rebound against the dollar and the yen."
The prevailing optimism encouraged investors to venture out of the dollar and yen and into currencies, such as the euro, seen as carrying greater risk. Trading sentiment got a boost Monday from reports that a rescue deal with creditors had been reached for CIT, a US lender to small- and mid-sized businesses, helping ease concerns that the recovering financial sector could face a fresh setback.
Still in the United States, the Conference Board economic survey for June was up 0.7 percent, a third straight monthly increase and above forecasts for a 0.5 percent gain, helping to strengthen hopes for an end to the long recession.
In further upbeat reports, the German finance ministry and central bank said the country's worst recession since World War II had lost much of its intensity.
After a disastrous first quarter, "the recessionary trend has clearly weakened" in Europe's biggest economy, the Bundesbank central bank said.
Economic activity "should have fallen only slightly" after a record contraction of 3.8 percent in the first three months of the year from the previous quarter, it added.
Finance ministry officials agreed, saying: "Available economic data support the hypothesis that second quarter economic activity was undoubtedly better than expected."
The currency market is now turning its attention to Congressional testimony Tuesday and Wednesday from US Federal Reserve Chairman Ben Bernanke.
"The financial markets will want to know how optimistic the (Fed policymakers) have become since the data began improving and what this means for the policy of quantitative easing," said Derek Halpenny of Bank of Tokyo-Mitsubishi
Quantitative easing is a process by which central banks such as the Fed, having reduced interest rates to near zero, turn to measures to increase the money supply in order to relieve a credit squeeze.
In trading here on Monday, the euro was changing hands at 1.4217 dollars against 1.4096 dollars late on Friday, 134.19 yen (132.84), 0.8628 pounds (0.8630) and 1.5202 Swiss francs (1.5181).
The dollar stood at 94.49 yen (94.17) and 1.0704 Swiss francs (1.0761).
The pound was at 1.6460 dollars (1.6333).
On the London Bullion Market, the price of gold rose to 952.75 dollars an ounce from 937.50 dollars an ounce late on Friday.