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 A key German survey showing a sharp decline in investor morale in
Europe's biggest economy also weighed on the currency.
Traders say hedge funds have stepped up euro selling on speculation
that the European Central Bank will ease monetary policy next month
to counter a strengthening currency and its impact on already low
inflation.
Quoting an unnamed source, Dow Jones reported on Monday that the
hawkish German central bank was willing to back a negative interest
rate on bank deposits and ECB purchases of packaged bank loans if
needed to keep inflation from staying too low.
The report drove the euro past support at its 100-day moving average
of $1.3740 to a trough of $1.3700, its lowest since April 7, and
down 0.4 percent on the day.
The common currency had already weakened after the monthly ZEW
survey of German economic sentiment fell short of expectations. The
index reading dropped to 33.1 from 43.2 in April, missing a Reuters
consensus of 41.0 and undershooting even the poll's lowest estimate
of 37.1.
"Expectations are back at to levels seen in early 2013 and
respondents are looking for a rate cut," said Jeremy Stretch, head
of currency strategy at CIBC World Markets. "What is now needed for
a weaker euro is a push from the U.S. side, with better data likely
to lift U.S. yields and the dollar."
U.S. retail sales for April are due later and are expected to show a
slowdown after a sharp rise in March.
Yujiro Goto, a strategist at Nomura said that unless U.S. data
improved significantly, the euro's move lower was likely to be more
of a grind than a fast-paced decline.
"We see the euro trading with a downward bias given the market is
expecting some kind of easing from the ECB next month. It is still
not clear whether it will do quantitative easing, but a rate cut is
more likely," he said.
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SWEDISH CROWN RISES
The Swedish crown rose against the euro after monthly inflation came
in above expectations. The euro fell 0.5 percent to 8.9935 crowns
after the data was released from 9.0420 crowns beforehand.
Against sterling, the euro stood at 16-month lows of 81.40 pence.
The pound was buoyed by prospects of rate hikes by the Bank of
England, perhaps as early as later this year.
Data showed British retail sales jumped in April as rising house
prices encouraged shoppers to buy new furniture, flooring and other
home decor over the Easter holiday weekend.
The yen ticked down to a one-week low against the dollar as improved
risk sentiment sent U.S. share prices to record highs. European
stocks were also trading firmer on expectations of more stimulus
from the ECB.
The dollar traded up 0.2 percent against the yen at 102.30 yen.
(Editing by Catherine Evans)
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