Euro falls vs US dollar as markets wait for Fed hints

The euro fell Monday against the U.S. dollar, which continued its recent modest rally as markets awaited hints from the U.S. Federal Reserve about interest rate moves and economic figures from Washington.

The euro purchased US$1.5442 in afternoon European trading, down from US$1.5480 late Friday in New York.

The dollar rose to 103.99 Japanese yen from 103.09 yen on Friday, while the British pound rose to US$1.9572 from US$1.9519 in New York.

The dollar has now risen 3.6 percent since hitting an all-time low of US$1.6018 against the euro on April 22, climbing on the belief that the U.S. Fed may finished cutting interest rates and that the U.S. economy may avoid a severe recession.

Investors were looking ahead to Federal Reserve Chairman Ben Bernanke's speech Tuesday for further indications about the Fed's intentions on interest rates.

The Fed has lowered its rates seven times in seven months to 2 percent, a major factor causing the dollar to sag against the euro. Though lower interest rates can spur a nation's economy, they can weigh on its currency as traders transfer funds to countries where they can earn higher returns _ and interest rates are higher in Europe.

Traders were waiting to see whether Bernanke's remarks Tuesday would confirm the widespread impression that the Fed's last rate cut of a quarter point on April 30 would be the last in its easing series.

"Much of the recent dollar appreciation is on the back of speculation that the country's economy may have turned something of a corner so anything that serves to derail this observation will ultimately end up weighing on the greenback," said James Hughes, a market analyst at CMC Markets.

"The assumption, however, remains for the time being that the Fed is nearly at the end of its accommodative approach to monetary policy and the run of cuts we've seen of late will not continue for much longer."

There was also a focus on the U.S. retail sector for indications about the strength of the American economy. Retail sales figures come out Tuesday, with the consumer price index numbers scheduled for Wednesday _ all amid a raft of earnings reports from major U.S. retailers, including Wal-Mart.

Gavin Friend, the head of foreign exchange strategy at Commerzbank in London said that from a fundamental perspective, the dollar will most likely weaken again if the numbers are poor.

"U.S. retail sales figures come out tomorrow, and we're expecting soft numbers," Friend said

He said expects slow or even negative growth in the U.S. through the rest of the year driving the dollar lower, but without visiting "any real slide."

In the 15-nation Euro zone, he said he expects data improving, which will prop up the euro.

Even though the euro has come under pressure and there has been a bit of a "reorientation in the U.S. economy" that has worked in favor of the dollar, it does not mean the euro is down and out, said Howard Archer, the chief UK and European economist at Global Insight, in London.

"We think the euro will trade at around US$1.55 for an extended period," Archer said, noting that the European currency will probably spike higher, but not until later this year or next. "We think the euro could have a final flourish toward the end of the year," he said.