The dollar recovered further from last week's five-month lows against the euro in thin summer trade yesterday, gaining more than half a per cent against the single currency.

The market is now anxiously awaiting a number of key data releases and a crucial European Central Bank (ECB) meeting later this week.

The euro was trading around 91 cents at the close of trade in Dublin yesterday, down from the highs of 92.40 it hit last week.

Traders said increasing optimism about the US economy, in the wake of a sharp rally on the US stock market on Friday, had boosted confidence in the US currency.

US stocks staged their biggest rally in more than six weeks on Friday after technology group Cisco said business was stabilising. Strong new home sales also boosted optimism that consumers are propping up a key sector of the US economy.

But dealers said trading was thin, particularly with British markets closed for a bank holiday. They also noted that much of the euro's recent rise was down to speculative trading but many currency speculators were now taking profits and closing positions ahead of the key data releases and announcements later this week.

"People are getting a bit edgy ahead of the ECB meeting," one trader said.

First on the list of releases is euro zone money supply data, due out later today. Fears that it will show a sharp rise has led to concern in some quarters that it could make it difficult for the ECB to cut rates on Thursday, as expected.

"Both policy pillars are above target," says Mr Aziz McMahon, economist at Ulster Bank Group Treasury, referring to growth in euro zone money supply and inflation.

He believes the central bank could surprise and disappoint the market by delaying a rate cut, a move that would put further pressure on the euro.

However, others believe the chill winds blowing in from the Atlantic, allied to some recent positive euro zone data, means the ECB will go ahead and deliver a cut of at least a quarter of a percentage point.

Preliminary US second-quarter GDP, due out on Wednesday, will also be critical for the direction of the dollar and euro.

"There is a feeling that the US Federal Reserve may be close to the end of its rate-cutting cycle and that the rate of decline in the US economy is slowing," says Mr Austin Hughes, economist with IIB Bank.