The dollar was weaker against the euro and the pound, continuing from Friday's losses on weaker-than-expected US core inflation data, while the yen remained in the doldrums, again hitting new record lows against the euro. Though headline US CPI inflation was on the firm side, the weak core reading led market participants to question the growing assumption the Federal Reserve will not cut interest rates and may even raise them. "Both the pound and euro have started the week in an upbeat mood against the dollar after the tame US inflation data released at the end of last week," said David Jones, chief market analyst at CMC Markets. To add to the softer inflation figures on Friday, the news was compounded by a raft of other weak US data, including industrial production and the latest University of Michigan consumer sentiment reading. The dollar fell to 10-day lows against the euro and 11-day lows against the pound this morning and could be set for further falls if US interest rate expectations are eroded further. "The dollar looks vulnerable to a further dovish retracement in interest rate markets," said Mitul Kotecha at Calyon. Movements are likely to be driven by bond markets, he said, with any decline in US bond yields likely to be negative for the currency, especially if US bonds outperform other bond markets. US bond yields have risen sharply in recent weeks as the market began to price out the possibility of a US rate cut.