NEW YORK: The euro weakened against the dollar on Monday and was on track for its worst month since December, pressured by nagging euro zone stresses as German retail sales were softer than expected and Spain slipped into recession.
Investors were also wary of buying euros before weekend elections in France and Greece and a European Central Bank (ECB) meeting later in the week that could knock sentiment in the single currency.
"There is clear risk aversion in the market," said Boris Schlossberg, director of FX research at GFT in Jersey City, New Jersey, citing data showing Spain's slide into recession and the weaker-than-expected German data. "In short, the news from Europe continues to point to further structural stress in the system."
The euro failed to gain traction versus the dollar despite signs the US economic recovery was losing momentum and concerns about possible further US monetary easing. Data on Monday reinforced that view.
A US report showed US household spending rose 0.3 percent, below the consensus forecast of a 0.4 percent increase. Taking into account inflation, spending rose 0.1 percent.
Adding to the weak US view was a drop in Midwest business activity. The Institute for Supply Management-Chicago's business index fell to 56.2 in April, below market forecasts of 61.0. The reading was 62.2 in March.
In mid-morning New York trading, the euro fell 0.1 percent to $1.3234 against the dollar as investors were wary of pushing it back toward a near 1-month high of $1.3270 on Friday. However, it stayed just above support at its 55-day moving average at about $1.3211.
On the month, the euro was down 0.9 percent, its worst performance since December last year.
"The euro is a bit lower but it's within its recent ranges, with people waiting for elections and US non-farm payrolls data on Friday," said Adam Cole, currency strategist at RBC Capital Markets in London.
The second round of the French presidential vote and elections for a new Greek parliament were due this weekend.
Data showing Spain slipping into recession also highlighted concerns that harsh austerity measures in deeply indebted peripheral euro zone countries were hampering economic activity.
This left the euro struggling to benefit from weakness in the dollar, which earlier touched 78.638 against a basket of currencies. The dollar fell to its lowest since March 1 before recovering to trade at 78.797, up 0.1 percent on the day.
The euro also dropped to a 2-week low against the yen at 105.63 and last traded at 105.78, down 0.6 percent. Investors expected the Japanese currency to benefit from safe-haven demand in view of Europe's debt problems.
Markets in most of Europe will be shut on Tuesday for May Day, while Japan celebrates Golden Week holidays for much of the week, keeping trading on foreign exchange markets subdued.
The ECB policy meeting on Thursday could weigh on the euro. After euro zone business confidence weakened sharply in April, the ECB could scale back its economic outlook at the meeting. Rising chances of more ECB easing in coming months could cap any gains in the euro against the dollar.
The dollar also hit a more than 2-month low against the yen at 79.860 following the weak Chicago PMI report, and was last at 79.950, down 0.4 percent. For the month, the dollar was down 3.4 percent, its weakest monthly performance since July 2011.
Greg Michalowski, chief currency analyst at online FX broker FXDD, said the next key target for dollar/yen to the downside comes in at the 100-day moving average at 79.54 level. He added that the currency pair has not closed below this level since Feb. 8.
Market players said the dollar may fall further against the yen, given a drop in US Treasury yields. The dollar/yen exchange rate has a tight relationship with the spreads between yields on US Treasuries and Japanese government bonds.
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