A surprise quarterly loss at Wachovia Corp. the fourth-largest U.S. bank, added to bearish sentiment on the dollar. Merrill Lynch & Co Inc and Citigroup Inc report quarterly results later in the week, and analysts say both banks may announce billions of dollars in write-downs.
The dollar gained briefly after data showed an unexpected rise in U.S. retail sales in March. But selling of the greenback resumed as investors focused on details showing that gasoline sales, sparked by higher prices, was a key to the overall gain, rather than strength in consumer spending.
In midday New York trading, the euro was up 0.2 percent at $1.5836, above pre-G7 levels of around $1.5800 and well up from the post-G7 low around $1.5670.
Comments from European Central Bank officials clearly indicating the bank's lack of interest in cutting euro zone interest rates also supported the single currency.
ECB Governing Council member Yves Mersch on Monday was quoted as saying there's no room for rate cuts this year, while his colleague on the council Axel Weber said on Friday there's no scope for easing at present.
The dollar had earlier rallied in Asian trading after G7 finance ministers and central bankers on Friday highlighted sharp moves in major currencies since their February meeting. It was the first time the communique had mentioned major currencies since 2000 and the first time in four years the language on foreign exchange had changed.
The dollar fell 0.2 percent against the yen to 100.74, weighed down by the unexpected first-quarter loss at Wachovia. Investors tend to buy yen when there is heightened risk aversion in the market.
Amid deepening U.S. economic weakness and financial sector stress, the Fed is widely expected to lower interest rates from the current 2.25 percent later in April, adding to the 3 percentage points of cuts it has administered since September in a bid to shore up growth.
In contrast, markets expect the ECB to keep interest rates at 4.0 percent for some time.