Dollar mixed in Europe with negative reports from EU

BERLIN - The dollar was mixed in Europe on Monday following an economic report showing that inflation was on the rise in countries using the euro.

The euro fell to $1.5610, down from the $1.5635 that it purchased late Friday in New York.

The British pound was up slightly to $1.9896 from $1.9826 in New York, while the dollar slipped to purchase 104.40 Japanese yen from 105.26 on Friday.

The euro rose to a new all-time high of $1.6018 last week on continued concern about the U.S. economy, but Europe is wrestling with soaring prices that threaten to slow growth.

The EU is predicting that inflation in the euro economy would rise to an average 3.2 percent this year from 2.1 percent last year -- far above the European Central Bank's recommended guideline of just under 2 percent.

Germany, the continent's biggest economy, has also shown signs of slowing, said Gary Thomson, the head of sales trading at CMC Markets.

"There has been a slight retracement, but disquiet is emerging over the bigger than expected drop in German IFO last week, and the state of the euro-zone economy as a whole is now being called into question," he said in a research note.

"Obviously next week's ECB rate meeting will be of critical importance whilst the Fed's equivalent this week also has the potential to provide some direction for the pair in the shorter term, but the market seems to have priced in the consensus quarter point cut here already."

Though lower interest rates can spur a nation's economy, they can weigh on its currency as traders transfer funds to countries where they can earn higher returns.

There was some good news out of Germany to begin the week.

German consumer confidence has soared to its highest level since October, bolstered by a strong labor market and new wage agreements, according to a closely watched survey released Monday.

"Any sign that a pattern of slowdown is emerging here could be sufficient to push the euro lower still in the near term, but at the same time a degree of technical resistance is probably to be expected as those shorting the currency look to book profits too," Thomson said.