The euro fell to a one-month low against the dollar on Monday as speculation mounted that the European Central Bank will cut interest rates next month to fight the recession, dealers said.
The European single currency sank as low as 1.2959 in morning trade. It later pulled back to 1.2968 dollars, from 1.3043 dollars late in New York on Friday.
Against the Japanese currency, the dollar dipped to 98.84 yen from 99.13 yen on Friday.
European Central Bank (ECB) governor Jean-Claude Trichet signalled over the weekend that another interest rate cut was likely in the eurozone next month, along with other "non-standard" measures to spur economic growth.
"The key driver for the euro/dollar rate were a series of interviews given by ECB President Trichet in Japan... in which he clearly hinted at one further 0.25-point cut at the next ECB meeting on 7th May," said economist Derek Halpenny at The Bank of Tokyo-Mitsubishi UFJ in London.
The ECB earlier this month lowered its key lending rate by a quarter point to a record low 1.25 percent.
"The euro has been trending lower since Trichet started making these comments," Osao Iizuka, head of forex trading at Sumitomo Trust & Banking, told Dow Jones Newswires.
Expectations for lower eurozone interest rates and possible steps to expand the money supply could push the euro down to about 126.00 yen and 1.2800 dollars, Iizuka said.
Traders were waiting for economic figures due this week in the region including surveys of German investor confidence and business sentiment, as well as manufacturing data.
European nations are only "half-way through" the fallout from the financial crisis, said Sumitomo Mitsui Banking Corp chief strategist Daisuke Uno.
The dollar was supported by better-than-expected earnings reports from Citigroup and General Electric, as well as an improvement in US consumer confidence.
Market players were turning their attention to a weekend meeting in Washington of the Group of Seven (G7) and Group of 20 (G20) nations.
The meeting follows the G20 summit in London earlier this month, which culminated in a 1.1-trillion-dollar injection into major multilateral institutions such as the IMF to help battle the global recession.
In London foreign exchange trading, the euro was changing hands at 1.2968 dollars against 1.3043 dollars late on Friday, 128.36 yen (129.28), 0.8895 pounds (0.8816) and 1.5179 Swiss francs (1.5197).
The dollar stood at 98.84 yen (99.13) and 1.1688 Swiss francs (1.1648).
The pound was at 1.4602 dollars (1.4795).
On the London Bullion Market, the price of gold eased to 870.20 dollars an ounce from 870.50 dollars an ounce late on Friday.
