The dollar suffered big drops against both sterling and the euro in Monday trading as traders moved towards currencies that are likely to see their interest rates increase soon.

Sterling rose to 2.0188, setting a new 26-year high against the greenback, while the euro traded around 1.3630, maintained its position near April's record high of 1.3680.

"The U.S. currency is under pressure as central banks elsewhere, such as the Bank of England, could raise interest rates at policy meetings this week," currency strategist Masafumi Yamamoto told Reuters.

Reports also suggest that the recent terror attacks on Britain have negatively impacted on the dollar, as they have heightened speculation that the US will be attacked over the 4th of July holiday period.

However, dollar trading against the yen has not suffered as the markets are still showing a marked trend for selling the Japanese currency in the carry trades.

Later this month, the Bank of England's monetary policy committee is due to hold its monthly interest rates meeting and many analysts are predicting a .25 per cent increase on the current rate of 5.75 per cent.