The dollar staged a small comeback today, rising by a third of a per cent against the euro after testing five-month lows set last week but traders said thin market conditions were exaggerating price moves.
Earlier, concern about the speed at which the US economy might recover had pushed the dollar down to five-month lows against the Swiss franc and to a retest of last week's lows against the euro around $0.92. The dollar has shed about 10 per cent against the euro since early July.
But the euro's failure to crack through selling interest at $0.92 and little fresh news saw the US currency regain the upper hand as liquidity remained tight ahead of tomorrow's meeting of the Federal Reserve Open Market Committee.
A poll of US bond dealers found all expected a cut of 25 basis points in the Fed funds rate to 3.5 per cent.
A half-point move was considered unlikely since the Fed only shifted to quarter point easings at its last meeting and changing back might smack of panic, analysts said.
"What we're seeing in the early part of this week is focus on the US - with the Fed meeting, then later on we have the focus return to Europe with a lot of German numbers," said one dealer.
On Wednesday, the Ifo institute's key survey of business sentiment in Germany is expected to show its sixth successive monthly drop.
Second-quarter German GDP growth numbers on Thursday, meanwhile, are seen falling 0.2 per cent, in what just might be the first step into recession.
Euro zone industrial production rose 0.6 per cent on the month in June, stronger than expected. Earlier, a report showed German construction orders rose 3.6 per cent year-on-year in real terms in June after a 3.9 per cent drop in May.