The surge in the dollar also benefited the pound, which hit a new high against the euro in early London trading. Currency dealers had feared that finance ministers from the world's seven leading industrialised nations - who met in Bonn on Saturday - would hint that they would like to see the dollar weaken. But the communique released after the summit reaffirmed current exchange rate policy, namely to "promote exchange rates among major currencies that are in line with economic fundamentals".
Paul Meggyesi, currency analyst at Deutsche Bank, said: "The perception is that the G7 is happy to see a stronger dollar."
The dollar was also boosted by speculation that Alan Greenspan, chairman of the US Federal Reserve, could hint at higher interest rates in his biannual Humphrey Hawkins testimony, which begins today.
The US currency hit 122.53 yen, a two-and-a-half month high, before falling back to 120.44 amid late trade profit-taking.
Comments from Eisuke Sakakibara, the Japanese finance official known as "Mr Yen" for his impact on currency markets, also helped push the dollar lower. Mr Sakakibara said the yen could rebound later this year. The dollar reached a record high against the euro, hitting $1.096 in morning trading in London. The euro, which has been undermined by persistent concerns about European growth, has now fallen by more than 6 per cent against the dollar since the start of the year.
The strength in the dollar also benefited the pound. Sterling closed at 67.98 pence to the euro, just off its day's highs. But analysts said the pound's strength was unlikely to be sustainable, given the weak short- term outlook for the UK.
Two new studies out yesterday suggested the UK economic slowdown could soon be past its worst. The NTC Research leading indicator of economic activity registered a small increase for the fourth successive month, suggesting that growth will start to recover by the end of the year.
The Credit Card Research Group also said credit card expenditure reached pounds 9.5bn last month, 13 per cent up on January 1998.