LONDON (MarketWatch) -- The dollar was lower against most major counterparts Monday, overshadowed by heightened worries over the financial sector following the U.S. government's rescue of troubled banking giant Citigroup.
"Concerns about the U.S. banking sector appear to be weighing on the dollar as it continues to weaken through some key levels against its main counterparts," wrote strategists at Lloyds TSB.
The euro rallied above resistance at the $1.2650 level, they noted, and traded recently at $1.2706, up from $1.2587 in North American activity late Friday.
The British pound changed hands at $1.5021, up from $1.4933.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, fell to 87.040 from 87.658.
The dollar slipped against the Japanese currency to 95.33 yen from around 95.92 yen Friday.
The U.S. government agreed Sunday night to rescue Citigroup with a plan that includes a $20 billion capital infusion, guarantees for as much as $306 billion of Citi's troubled assets, government control of executive bonuses, and limits on dividend payments. See full story.
Meanwhile, strategists at BNP Paribas said there's mounting evidence that liquidation and de-leveraging pressures are no longer universal, citing last week's firm tone in the gold market.
Also, the euro/U.S. dollar currency pair barely budged last week amid sharp sell-offs in equities, they noted. In recent months, the euro had come under pressure as equities sold off.
"Given the massive sell-off witnessed in shares last week euro/U.S. dollar hardly moved indicating that [the euro's] least resistance in the short term (against the dollar) is probably to the upside," they wrote.
Important resistance stands at $1.2730, they said, but a break above that level could point the way to a test of $1.33.
The euro sank briefly Monday after the Munich-based Ifo Institute's November business-climate index showed a steeper-than-expected drop to a 15-year low of 85.8.
Economists said the data underlined a deteriorating outlook for the largest economy in Europe and the euro zone, and signaled that the region's resilient labor market is likely to begin to suffer significantly in coming months
"The upshot is that the recession is becoming increasingly entrenched, with more pain to consumers lying ahead," said Tulia Bucco, an economist with UniCredit MIB in Milan.
Close attention, meanwhile, will be paid to the British government's unveiling of an economic stimulus plan at 10:30 a.m. Eastern.
The plan is widely expected to center on a reduction in the value-added tax, or VAT, charged on most goods and services from 17.5% to 15%.
