The euro fell against the dollar today, pulling away from a two-month high as concerns about the effectiveness of stress tests on European banks prompted investors to trim long positions in the single currency.
The euro had fallen 0.6 per cent on the day to $1.2570, easing from $1.2723 hit on Friday.
The dollar rose across the board, recovering from a fall against a currency basket late last week to its lowest since early May, as investors crept into dollar-denominated assets, a common occurrence during times of risk aversion.
Investors awaited more details on stress tests on 91 European banks - the results of which are due later in the month - as the European Union seeks to restore confidence in the sector.
Analysts said that despite the euro's rally this month, its failure to break above a key downtrend line had stalled its upward momentum.
"We saw a decent comeback in the euro in the past week, so there's been some profit taking on that move," said Kasper Kirkegaard, currency strategist at Danske in Copenhagen.
"There's some nervousness in the market, and prices are rising on risky assets." Analysts said the efficacy of the stress tests would depend on how much detail they include, and the possibility the results may be thin on in-depth information was weighing on the euro.
Market participants awaited second quarter earnings results from US firms, which kick off this week, to gauge the health of firms after a weak run of economic data has raised speculation the economic recovery may be losing momentum.
Many investors expect a solid earnings season.
Some in the market said the euro had been knocked by a weekend German magazine report that the stress tests would include a haircut on German sovereign debt under certain conditions, as it followed reports last week that the tests would not include German haircuts.
The single currency was also under selling pressure after its failure late last week to rise above a downtrend line drawn through the euro's high hit in December and an April peak, and resistance is now seen around $1.2647.
The dollar index, which tracks its performance versus a basket of other currencies, rose 0.5 per cent, recovering from a slide to 83.622 on Friday, its weakest since May 10th.
It rose 0.3 per cent against the yen to 88.85 yen, having climbed as high as around 89.15 yen, its highest in roughly two weeks in Asian trade.