The euro retreated to a 10-day low against the dollar on Monday, as investors focused on a European Central Bank meeting later in the week that could pave the way for further stimulus to boost inflation in the euro zone. Though most traders and analysts believe the ECB will wait until its December meeting to announce anything new, they see a risk that additional easing measures could be flagged this Thursday and are betting ECB chief Mario Draghi will at least try to talk the currency down.
"Any dovish shift in the ECB's language will be seen as increasing the odds of more stimulus and likely send the euro broadly lower," said Omer Esiner, chief market analyst, at Commonwealth Foreign Exchange in Washington. The dollar has also been supported by some positive US economic data last week such as the higher-than-expected consumer inflation and a four-decade low for initial weekly jobless claims. These reports gave some hope the Federal Reserve may actually raise interest rates this year, underpinning the US currency.
In early New York trading, the euro was 0.2 percent lower at $1.1324, trimming its losses from a session low of to $1.1308, its weakest since October 9. Against sterling, it fell 0.6 percent to 73.14 pence after dropping to a 3-1/2-week low of 73.05 pence. Many banks were expecting the euro to fall to parity with the dollar by the end of the year as the ECB pumps 60 billion euros into the economy each month. But since dipping below $1.05 in March, it has gained around 9 percent, adding to the deflationary pressures facing the euro zone. The dollar index, meanwhile, on Monday rose 0.4 percent to 94.884.5.
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