The dollar was mired near multi-month lows against the euro and sterling on Monday, still smarting after weak U.S. economic indicators last week dampened expectations for higher interest rates. After falling sharply on dollar-bearish inflation and investment flow data on Friday, the greenback hit its lowest against the euro and sterling in over four months in early trade. But it struggled up from its lows in the European session, with investors reluctant to extend the dollar's losses ahead of a key speech by U.S. central bank chief Alan Greenspan later this week. "Sentiment towards the dollar is still negative because of Friday's data but people are really waiting now for what Greenspan has to say," said Paul Mackel, currency strategist at ABN AMRO.
Greenspan delivers his semi-annual monetary report to the Senate and U.S. House of Representatives on Tuesday and Wednesday. His comments on growth and inflation could give vital clues on the future path of U.S. interest rates. The dollar fell to $1.2461 per euro in Asia, its lowest since early March, before recovering and pushing the euro back down to $1.2418 by 0955 GMT. The dollar also regained its footing against sterling after falling to its lowest since February earlier in the session but remained on the back foot against the yen, at 108.40 yen .
HOW MUCH RECOVERY?
Recent U.S. economic indicators have signalled that the recovery of the world's largest economy has lost some steam, prompting markets to scale back expectations of future interest rates rises and sell the dollar. Friday's data -- which showed core inflation weaker than expected and foreign demand for U.S. assets abating -- followed disappointing U.S. retail sales and industrial production data in recent sessions. "Economic numbers have been weaker than the market had anticipated and the environment for rapid U.S. rate hikes has been scaled down," said Mark McFarland, currency strategist at UBS in London. "Investment flows supporting the dollar have diminished in size and the potential for U.S. growth is weaker." Given recent signs of a pause in the U.S. recovery, markets are eager to see whether Greenspan reiterates his pledge of "measured" monetary tightening in his congressional testimony this week. The Fed has repeatedly signalled that any future interest rates hikes will be gradual. The market has taken this as meaning further quarter-point hikes, following June's increase to 1.25 percent which was the Fed's first in four years. Fed Bank of Minneapolis President Gary Stern was scheduled to appear for on CNBC at 1635 GMT. The euro showed little reaction to data showing industrial output in the euro zone rose for a fourth consecutive month in May and by slightly more than expected.///