The euro stabilised against the dollar following US producer price and retail sale reports and ahead of the meeting of the Group of Seven finance ministers in Frankfurt this weekend.
The euro closed at $1.0474 from $1.0477 a day earlier and at 65.06p against sterling from 65.47p.
The euro was helped by a growing conviction that the US Federal Reserve will raise rates when it meets on June 30th, which could undermine US asset markets.
The US dollar was also slightly hindered by reports that the Japanese economy may be about to turn the corner finally.
Deutsche Bank said in a research note yesterday that Wednesday's US inflation data is expected to show a modest increase, reinforcing fears of an impending rate increase.
Analysts said the Fed chairman Mr Alan Greenspan's testimony on monetary policy and the economic outlook on Thursday before the Joint Economic Committee will also be closely watched for clues.
The markets will also be paying close attention to further evidence that the worst may be over in Germany. On Wednesday, Germany's May Ifo index, which measures business confidence, should also test new-found optimism over growth, given recent firm data.
US producer prices rose 0.2 per cent in May while the core rate in the producer price index, which excludes food and energy, gained 0.1 per cent. The figures, a measure of inflation at the wholesale level, were in line with Wall Street expectations.
Retail sales rose 1 per cent in May over April, slightly stronger than expected, as the consensus forecast on Wall Street had been for retail sales to rise 0.7 per cent.
