Economists expect the dollar to weaken against the euro ahead of the publication of key US economic statistics this week.
The US currency made some gains against the euro early yesterday, bringing the rate down to just under $1.20 to €1, before slipping to close at $1.2059.
Market watchers attributed the early morning gains to the fact that it had strengthened against the yen on the Asian markets, where economists say there is a natural bias towards buying the dollar, and to positive US consumer data.
US personal consumption grew by 0.8 per cent year-on-year in July, ahead of an expected 0.7 per cent. Personal incomes increased at a more sedate 0.1 per cent over the same period. The markets were expecting a figure of 0.5 per cent.
However, the dollar lost its early gains as nervous markets looked ahead to the publication in the US this week of manufacturing and employment statistics, which are regarded as better barometers of economic health.
Investors were also reported to be cautious ahead of the Republican Party's conference in New York as some observers feared that the gathering could be the subject of an attack.
Ulster Bank's financial markets economist, Mr Niall Dunne, said yesterday that the markets expected Friday's manufacturing employment figures to show anaemic jobs growth for August.
He suggested that the payroll figures would show a disappointing 140,000-150,000 new jobs created this month.
In addition, Mr Dunne said that, while a European Central Bank (ECB) press conference on Thursday was unlikely to signal a rise in interest rates, board members were likely to be "hawkish" about inflation.
"I think the euro will be higher against the dollar by the end of the week," he said.
Mr Jim Power, chief economist at Friends First, said there was a general sense that the US economy was losing some of its steam.
"The dollar is under pressure because of renewed concerns about the sustainability of the US recovery," he said. "The dollar has been caught in a trading range of $1.18-$1.24 [to €1\] and I would not expect that to be broken. The dollar is likely to stay at the bottom of that range."
IIB chief economist Mr Austin Hughes said that currency markets would remain quiet ahead of the US data.
"I don't think there is any credible risk of terrorism in New York," he said. "The real issue is the strength of the US economy and the scope of the dollar to remain relatively healthy."
