The Dollar fell to over a two-month low on Monday, extending last week's downtrend, as traders reiterated their view that rates have peaked in the US and switched focus to when the Fed may start slashing rates.

The Dollar index – measuring the greenback against major peers – stood at 103.53 at the time of writing, its lowest level since 1st September, and prolonging its close to 2% drop from last week, the steepest fall since July.

The Euro reached its highest since August against the weaker Dollar at $1.0937, whilst the Japanese Yen touched a five-and-a-half-week high of 148.63 per Dollar.

As markets have now priced out the risk of additional rate hikes from the Fed, following weaker-than-forecast US economic indicators last week, the focus is now on the likely start of the rate cutting. Futures are pricing in a 30% chance the Fed may start lowering rates as soon as March, as per the CME FedWatch tool, Reuters reports.

"The weakness in the Dollar is to do with the moves in rate markets, especially after the November Fed meeting and last week's CPI," according to Dane Cekov, senior FX strategist at Nordea.

"From a technical perspective, the Dollar now looks oversold against the Euro. Usually, you'll see some sort of consolidation."

Furthermore, the Sterling rose 0.2% to $1.2484, close to a two-month high, whilst the Euro last bought $1.0926 before eurozone PMI readings due this week and after Moody's upgraded Italy's Baa3 sovereign rating to stable from negative, and Portugal's by two notches to A3.

Cekov said this should be positive for the Euro area as it should lead to a lower risk premium for both Italy and Portugal.

"In that sense, it removes some of the downside risk for the Euro. That's my first impression," Cekov added.

Elsewhere, in Australia, the Aussie was up 0.6% at $0.6551, after hitting a three-month high previously in the session, whilst the New Zealand Dollar rose 0.6% to $0.6031.