The euro fell against the dollar on Monday in thin trading after a bigger-than-expected drop in German business sentiment even as it raised hopes in some that the euro zone's largest economy will do more to revive the bloc's growth. Sentiment toward the euro remained uncertain as markets awaited a series of key events next month, including the European Central Bank's policy meeting on September 6, followed by the German Constitutional Court's ruling on the euro zone's permanent bailout fund on September 12.
A speech by Federal Reserve Chairman Ben Bernanke due on Friday will also be keenly watched by market players for any signs of action by the US central bank to spur tepid growth. German business sentiment dropped for a fourth straight month in August to reach its lowest since March 2010, the Munich-based Ifo think tank said, with the business climate hit by increasing worries about the future level of exports.
"The news clearly shows that Germany cannot escape unharmed if the rest of the eurozone falls into a deep recession," said Boris Schlossberg, managing director of FX Strategy at BK Asset Management in New York. The euro hit a session high of $1.2535 on Reuters data after the Ifo survey was released, but gradually lost ground to trade at $1.2499, closer to the session low of $1.2488, and down 0.1 percent on the day.
It stayed well below a peak of $1.2589 set last Thursday, its highest since July 4. Traders cited strong offers above $1.2580 and option barriers at $1.2600. Support lies around $1.2500. Volume was thin with London shut for a holiday. Further gains in the euro are likely before US Federal Reserve Chairman Ben Bernanke speaks at a central bankers' gathering in Jackson Hole, Wyoming, on Friday amid expectations of another round of monetary easing from the US central bank to stimulate sluggish growth.
Chicago Federal Reserve President Charles Evans said the Fed should immediately launch a fresh round of monetary stimulus and buy bonds for as long as it takes to produce a steady decline in the jobless rate. The euro climbed 1.4 percent last week on optimism the ECB will soon start buying Spanish and Italian bonds to bring down borrowing costs in troubled euro zone economies.
Against the yen, the euro was little changed at 98.44 yen. The dollar was up 0.1 percent at 78.74 yen. The Australian dollar skidded to a one-month low and looked vulnerable to further losses on fresh concerns about China's economy. The Aussie is often used to express views on the world's second-largest economy. The Aussie dollar was last down 0.3 percent at $1.0373.