NEW YORK: The euro recovered lost ground in rangebound trade on Monday, boosted by weaker-than-expected U.S. housing data that softened the blow to the euro zone common currency from news that German business morale fell.
The German data had taken the shine off better-than-expected stress-test results for European banks issued on Sunday but widely leaked at the end of last week.
U.S. September pending home sales gained 0.3 percent, according to the National Association of Realtors, versus a Reuters poll of economists who forecast a gain of 0.5 percent.
"The dollar slipped right after a little weaker-than-expected housing data and with a lack of other risk events today it was enough to push the euro back above $1.27," said John Doyle, director of markets at Washington, D.C-based Tempus Inc.
The euro traded at $1.2706, up 0.28 percent on the day . It gained 0.73 percent to 9.2560 Swedish crowns , a six-week high. Expectations are Sweden's central bank will cut interest rates to a record low to ward off the threat of deflation.
Market activity was subdued ahead of this week's Federal Reserve monetary policy meeting, where expectations are for the U.S. central bank to end its quantitative easing program and reinforce its stated willingness to wait a long while before raising rates.
German business sentiment in October fell for a sixth straight month, according to Munich-based Ifo economic think-tank. The index fell to 103.2 from 104.7 the prior month for the weakest reading since December 2012..
The euro zone's biggest economy had steamed ahead in the first quarter but it suffered a 0.2 percent contraction in the second quarter and concern is growing that Germany will slide into a recession.
The Ifo data cut into gains made by the euro against the U.S. dollar after better-than-expected results from the European Central Bank's stress tests.
Twenty-five out of the euro zone's 130 top banks failed the tests at the end of last year but most have since repaired their finances, the central bank said on Sunday.
Adam Myers, European head of currency strategy at Credit Agricole in London, said he expected the euro zone common currency to weaken before a crucial Fed policy meeting set to start on Tuesday.
"The Fed has been far more cautious recently because they don't want a stronger dollar, but even so, with the market interpreting the ECB and the European data the way they are at the moment ... the risk is that heading into the Fed, into Wednesday evening, we're going to break through last week's low."
The dollar sank 0.33 percent to 107.79 yen, underscoring a generally weak performance against its major rivals.
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