The dollar has slumped to a new low against the euro, fuelling concerns about future European economic growth.
The weak dollar is hurting European economies including Germany
Fears that the strong euro could have a serious effect on European economies in 2005 were sharpened by data showing a fall in business confidence in Germany.
The euro jumped to a high of $1.3248 on Thursday on suggestions the US may tolerate a weaker dollar, while gold prices surged to sixteen-year highs.
The dollar also fell to a new four-year low against the yen of 102.61 yen.
Concern over America's yawning trade and budget deficits have been behind the dollar's slide in recent months, but analysts said there was no specific reason behind Thursday's fall.
The dollar's decline has led to fears that growth across Europe's leading economies could be badly stunted in the early part of 2005.
The weak dollar makes it more expensive for European exporters to sell their goods in the US.
Fears over future productivity were highlighted by the decline in German business confidence to its lowest level in more than a year.
According to the monthly Ifo business outlook published on Thursday, confidence among German firms is at its lowest since September 2003.
Rising oil prices - back above $49 a barrel on Thursday - and growing indications that the US government is not prepared to intervene to halt the dollar's slide have sapped confidence.
The dollar's decline has been accompanied by a sharp rise in the price of gold and European bonds.
Gold soared above $452 a troy ounce, its highest level since the late 1980s, benefiting from its status as a safe haven investment.
"We have moved into a new stage of the dollar's decline," Jim McCormick, head of foreign exchange research at Lehman Brothers, told Reuters.
"The move is very much a fully fledged policy event. Until policy-makers truly protest, what's going to stop the trend?"
There has been little sign from Washington in recent weeks that the US government is willing to take immeditate action to reinforce its traditional "strong dollar" policy.
Policy-makers are mindful of recent remarks by Federal Reserve chairman Alan Greenspan who said last week he believed the US current account deficit is unsustainable.
Mr Greenspan also warned that foreign governments might lose their appetite for dollar assets, given the size of the US current account deficit.
Some analysts believe the euro - introduced in 1999 - could rise as high as $1.40 next year.
"The dollar-bearish sentiment, not only against the euro but also other currencies, remains firmly in place," Minoru Shiori, senior foreign exchange manager at Mitsubishi Securities, told the Associated Press.