The euro's early gains dried up as oil prices continued to come off recent highs, taking some of the edge off worries about runaway inflation. After setting records above $135 last week oil has eased off slightly, dropping under $130 as the chorus of voices complaining about its debilitating effects grew louder. Throughout Europe, demonstrations over the high price of oil are putting governments under pressure, leading French President Nicolas Sarkozy to call for the suspension of Europe's value-added tax on oil. Benedikt Germanue at UBS said said the dollar was buoyed by slightly receding fears about the price of oil, which in turn aided the recovery of risk appetites. Still, he believes the near-term outlook for the dollar remains mixed. "Falling oil prices may not necessarily lead to a stronger dollar, and any resumption of WTI (the benchmark crude traded in New York) upside would again stoke inflation fears, pressuring the dollar," he added. The day's only key piece of U.S. data also proved dollar positive. U.S. durable goods orders fell in April, but core capital goods orders showed unexpected strength with the best performance in a year and a half. Total new durables orders were off 0.5 pct, the Commerce Department reported today, but excluding transportation goods, they were up 2.5 pct. Economists polled by Thomson's IFR Markets had expected orders to fall 1.1 percent for the month overall and to be off 0.7 percent ex-transportation. Earlier though, the dollar was on the back foot as the euro gained ground after from signs of rising inflationary pressures in Germany. "The latest CPI data from German states highlights that the risk to the whole German release remains skewed to the topside," said Matthew Foster-Smith at IFR Markets. For the euro zone as a whole, analysts currently expect May inflation to accelerate again to an annual 3.6 percent, from 3.3 percent last month, partly as a result of higher energy prices. That would match the March figure, which was the highest since the euro was created. "This is all pointing towards the ECB having to continue with its hawkish stance to keep inflationary pressures in check and although this may be bad news for consumers, the accompanying strong yields on euro deposits should leave the currency looking upbeat as we move into the summer," James Hughes, analyst at CMC Markets said.