The euro was off a fresh all-time high against the dollar after an in-line manufacturing survey, with last week's soft US data continuing to weigh on the greenback.
The Purchasing Managers' manufacturing index for the 13-nation single currency area confirmed the earlier flash estimate reading of 53.2, down from 54.3 in August. This was in-line with analyst expectations and suggested that business sentiment is starting to wane, pushing the euro away from the all-time high of 1.4282 usd it hit in overnight Asian trade.
The main focus in the euro zone this week will be on the European Central Bank's interest rate decision. Analysts expect the ECB to remain on hold - however close attention will be on the subsequent press conference to see if the tightening bias remains in-tact.
Gavin Friend, currency analyst at Commerzbank said if ECB president Jean-Claude Trichet made any negative comments about the strength of the euro - something he has so far refrained from doing - then it could put a halt to the currency's ascendency.
But he added that 'only a pronounced fall of risk appetite could lead to a sustainable and stronger correction of the euro, which we currently do not expect.'
Meanwhile the dollar remained weak, with last Friday's softer than expected Michigan consumer confidence survey added to expectations that the US economy is entering a prolonged slowdown, and that further Federal Reserve rate cuts are on the cards.
'Investors will stay bearish to the dollar in the short term if US data continues to disappoint, if ECB officials stay hawkish and if G7 officials fail to give stronger signals on currency markets ahead of this month's meeting
on Oct 20-21,' said Geoffrey Wu, currency strategist at UBS. (NYSE:UBS)
Focus this week is likely to be on Friday's payrolls report to see if last month's surprise fall in jobs is repeated.
Meanwhile the yen was weaker as investors sold the Japanese currency to buy higher-yielding ones despite a stronger than expected manufacturing survey.
The Tankan report showed confidence among large Japanese manufacturers held flat for the second straight quarter in the third quarter, with strong confidence about sustained profit growth weighing against uncertainty about the subprime loan problem and the direction of financial markets.
'Overall, however, the tone of the survey was that businesses were not overly perturbed by the fallout from the US sub-prime market,' said Daragh Maher, currency strategist at Calyon.
'But with yield appetite back with a vengeance for now, the yen will likely remain on the back foot against all bar the dollar,' he added.
Finally the pound was stronger ahead of a series of lending figures from the Bank of England and a key manufacturing survey.
The Purchasing Managers' Manufacturing Index is expected to show a slight easing in the sector's growth rate to 55.7 from 56.3 in August. Meanwhile analysts anticipate figures from the BoE showing a slowdown in mortgage and unsecured lending during August as the turmoil in the credit markets pushed up lending rates.
London 0822 GMT London 0300 GMT
US dollar
yen 115.51 up from 115.03
sfr 1.1710 up from 1.1650
Euro
usd 1.4221 down from 1.4261
yen 164.24 up from 164.08
sfr 1.6648 up from 1.6615
stg 0.6954 down from 0.6972
Sterling
usd 2.0445 down from 2.0450
yen 236.12 up from 235.28
sfr 2.3938 up from 2.3825
Australian dollar
usd 0.8898 unchanged 0.8898
stg 0.4350 down from 0.4351
yen 102.72 up from 102.38
source: cnn money
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