By Deborah Levine & William L. Watts, MarketWatch NEW YORK (MarketWatch) -- The U.S. dollar rose to the highest level since May versus the euro on Monday amid signs of a deepening divide within Europe over aid to Greece. "Until the European Union resolves the problem in Greece, the euro will remain the whipping boy of global currency traders," said Joseph Brusuelas of Brusuelas Analytics. The euro (CUR_EURUSD 1.3513, -0.0018, -0.1330%) fell as low as $1.3462, the lowest on a closing basis in 10 months. The shared currency recently traded at $1.3526, compared to $1.3532 late Friday in North American trade. The euro crept up from that low as traders covered bets that it would fall further, according to Action Economics. The single currency lost 1.7% last week as optimism over Greece's ability to meet its debt obligations gave way to bickering within the euro zone over how to backstop the nation. The dollar index (DXY 80.84, +0.08, +0.10%) , which measures the U.S. unit against a trade-weighted basket of six major currencies, pared an earlier gain as the British pound recovered and Japanese yen rose. It traded as 80.738 from 80.747 late Friday. The dollar fell 0.4% to buy 90.14 yen . Japanese financial markets were closed on Monday for the spring equinox. The euro had climbed back to around $1.3800 early last week. The spotlight this week turns to a summit of European Union leaders Thursday. But German Chancellor Angela Merkel on Sunday said the issue of Greek aid shouldn't be a focus. Read about Europe's rift over Greek aid. Greek Prime Minister George Papandreou last week said it was crucial the E.U. use the summit to provide details on a standby aid plan for the nation, saying it would help bring down borrowing costs that otherwise threaten to derail Athens' efforts to slash its budget deficit. "We've got to the point where nobody really expects a significant aid package to turn up for the Greeks this week," said Kit Juckes, chief economist at the ECU Group, an economics consulting firm. The euro was hammered on Friday as early optimism over aid prospects for Greece gave way to growing signs of disagreement within the euro zone over the best route for aid. Strategists said the euro remained vulnerable to further weakness and volatility before and during the summit. "I think the euro remains in a downtrend and very vulnerable, but it has at least got to the point where nobody has false expectations about what the Europeans might spring from their hat," Juckes said. U.K. jostling The British pound (CUR_GBPUSD 1.5052, +0.0052, +0.3440%) had been under pressure during the European session but lately turned up slightly to buy $1.5069, from $1.5011 late Friday. The key event for the week will be the release of the government's budget for the 2010-11 financial year on Wednesday. Chancellor of the Exchequer Alistair Darling over the weekend said the budget won't include any major giveaways. The budget comes just weeks before an expected general election on May 6. Polls continue to show British Prime Minister Gordon Brown's Labour Party trailing the opposition Conservatives. But the gap remains narrow enough to foster market concerns of a hung parliament, in which neither party wins an outright majority. "The optimal outcome from the election as far as the markets are concerned would be a clear majority for the Conservative party," said Brian Dolan, chief currency strategist at Forex.com. "This is more likely to bring a quicker resolution to the worries surrounding the huge U.K. budget deficit. " "Further losses for the pound would be likely if the Labour party picks up more votes," he wrote in a research note. "In the absence of clear evidence on March 24 that the incumbent government is committed to tackling the budget deficit, cable could also see lower."

Source