Dollar softer, but euro fails get a boost

LONDON  (Reuters): The dollar briefly fell to a two-month low against a basket of currencies on Monday, hurt by signs that the U.S. economic recovery was losing momentum, which keeps alive the chances of further monetary easing by the Federal Reserve.

Despite the dollar’s problems, the euro failed to gain much traction, with investors looking to sell at higher levels as harsh austerity measures take a toll on economic activity across the region.

Spain slipped back into recession as gross domestic product shrank 0.3 percent in the January to March quarter, data showed on Monday. Traders were likely to be wary of the euro ahead of the second round of the French presidential vote as well as elections for a new Greek parliament next weekend.

The dollar touched 78.638 against a basket of currencies, its lowest since March 1, before rising to 78.855, up 0.2 percent on the day.

But the euro fell 0.3 percent against the dollar to $1.3215, off a near one-month high of $1.32706 on Friday, with near term support at its 55-day moving average of about $1.3206.

Markets in most of Europe will be shut on Tuesday for the May Day holiday, while Japan celebrates Golden Week holidays, keeping trading on foreign exchange markets a bit subdued.

Euro zone business confidence weakened sharply in April, and the European Central Bank could scale back its economic outlook at its policy meeting on Thursday. As such, the rising chances of more easing by the ECB in coming months could cap any gains in the euro against the dollar.