By Deborah Levine and William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar fell against the euro Monday, after a weak U.S. report on the housing sector and as the shared currency shrugged off an unsurprising downgrade of Ireland's credit rating.
Concerns about the sustainability of the U.S. economy's growth trumped a downgrade of Ireland's sovereign-debt rating as well as the International Monetary Fund's suspension of its support program for Hungary.
The euro (CUR_EURUSD 1.2954, +0.0062, +0.4809%) bought $1.2957, up from $1.2942 in North American trading late Friday.
The shared currency rose as high as $1.2991 early in Monday's European session. It had breached the $1.30 level on Friday.
Strategists said near-term upside targets above the $1.30 level remain in play, although nervousness will hold sway ahead of the publication of European bank stress-test results.
In sum, "euro rallies on good news and euro doesn't drop much on bad news," said Andrew Busch, global currency strategist at BMO Capital Markets. "The big test for this trend will be Friday when the European bank stress tests are released."
After being down slightly for most of the session, the dollar index (DXY 82.54, +0.06, +0.07%) , which tracks the greenback against a basket of six major currencies, traded at 82.543, compared to 82.504 on Friday. Wall Street got hit hard at the end of last week, reflecting growing investor concern about the U.S. economic outlook.
The dollar briefly pared its losses against the shared currency but turned lower again after the National Association of Home Builders/Wells Fargo housing-market index fell to 14 in July from a downwardly revised 16 in June. Read more on NAHB index.
"The market is still in the process of adjusting to a more sluggish economy in the second half of 2010, with U.S. assets bearing the brunt at the moment," said Brian Dolan, chief currency strategist for Forex.com. "We also think there is more to go in re-pricing for a slower global recovery."
Bernanke awaited
Data underlining concerns about the strength of the recovery in the largest global economy have left the dollar in a "difficult spot," said Kenneth Broux, market economist at Lloyds TSB.
The greenback has been undermined by the specter of a return to quantitative-easing measures by the Federal Reserve, ensuring that investors will pay close attention to congressional testimony Wednesday by Fed chief Ben Bernanke, analysts said.
Also Monday, Moody's Investors Service downgraded Ireland's sovereign-debt rating, to Aa2 from Aa1, but economists said the move didn't come as a major surprise. Read about the downgrade.
The euro has rebounded strongly since hitting a four-year low versus the greenback below $1.19 last month.
Boris Schlossberg, director of currency research at GFT, contends that the rebound is based less on changes in risk appetite than on the idea that growth in the euro zone may outpace the U.S. in the second half. That may prove tough to deliver, however, because of the export-oriented nature of euro-zone growth -- hampered by a stronger currency -- and the threat that a fall in U.S. demand could lead to slower growth in Asia and the Middle East as well, he said.
Among other major currencies, the British pound (CUR_GBPUSD 1.5219, -0.0068, -0.4449%) fell to $1.5222 from $1.5302 late Friday. The broadly stronger euro, meanwhile, rose to 85.14 pence, up 0.7% on the day, to reach its highest level against sterling since late May.
British house sellers dropped the average asking price by 0.6% in July, according to Rightmove.
The dollar rebounded slightly versus the Japanese yen (CUR_USDYEN 86.7300, +0.1700, +0.1964%) to trade at ¥86.72, up from ¥86.57 on Friday. Japanese markets were closed Monday for a public holiday.
Hungary, IMF
Also in the news, the dollar jumped 3% against the Hungarian forint dollar after negotiators from the European Union and the IMF suspended talks with Budapest and postponed the conclusion of a review of the program under with they have provided financial aid.
The EU and the IMF say Hungary needs to do more to shrink its budget deficit before use of the bailout program can resume. Read Emerging Markets.
The forint dropped (C_HUF 215.7300, -2.2200, -1.0186%) to trade at 224.3 per dollar. The euro rose 3.2% against the forint , to 290.6 per euro.
"The euro is likely to come under renewed pressure as the market is reminded that access to financial support and bailout packages is not automatic and contingent on strict fiscal targets being achieved," BNP Paribas strategists led by Hans Redeker wrote in a note.
