The dollar fell to a record low against the euro and a 26-year trough against the pound this morning.
The dollar has been undermined by a combination of factors, including weak retail sales and fears over the state of the US mortgage market.
Dealers said prospects of higher interest rates in Europe were also adding to the heavy selling pressure on the dollar.
The euro climbed to an all-time high of $1.3832 in Tokyo, up from $1.3781 in New York late on Tuesday.
The pound jumped to $2.0550 from $2.0465 on growing expectations of another rise in British interest rates to quell inflation, a move likely to make sterling more attractive to investors.
This evening the euro was trading at just over €1.38.
Financial markets also reacted nervously to reports that two hedge funds run by US investment bank Bear Stearns that have made big bets on sub-prime mortgages have been practically wiped out.
The markets were also jittery ahead of Federal Reserve chairman Ben Bernanke's testimony to Congress on the state of the US economy later Wednesday, as well as US consumer price inflation numbers.
