The dollar held small gains on most major currencies Monday, though the euro found support after hitting a four-year low against the greenback.
"There was no fresh 'bad news' from the euro zone, but sentiment is extremely poor, with continued concern over the various austerity measures, economic consequences and contagion," said strategists at Brown Brothers Harriman.
The dollar index (DXY), which tracks the U.S. unit against a trade-weighted basket of six major currencies, rose to 86.388 from 86.158 late Friday.
The euro (CUR_EURUSD) changed hands at $1.2352, little changed against $1.2375 in North American trading late Friday. But earlier in the session, the shared currency sank to $1.2233, its lowest level since April 2006.
The dollar (CUR_USDYEN) bought 92.33 Japanese yen, up from ��92.21 late Friday.
Against the yen, the euro was 1.9% lower (CUR_EURYEN) at ��114.08. Earlier, the euro sank as low as ��112.44, the lowest level since February.
Finance ministers from the 16 nations that share the euro began a meeting Monday in an effort to reinforce their budget enforcement rules as investors continue to flee the single currency amid fears of a widening sovereign debt crisis. A news conference is expected around 3 p.m. Eastern.
Declines in the euro could be limited before the meeting ends and traders heavily tilted toward bets that the euro will fall further may pare those positions, said strategists at GFT.
Fears that the euro zone's debt problems could turn into a full-blown funding crisis for European banks -- something that could, in turn, threaten to reignite the global financial crisis -- have sparked flight-to-quality flows into the U.S. and Japanese currencies.
The euro has plunged 15% against the dollar since trading above $1.50 in early December. The shared currency could extend all the way down to buying just $1, something that hasn't happened since 2002, technical analysts said.
"Given the current lack of confidence and problems in the euro zone, there is potential for a move below parity and possibly lower within the next two to three years, if the currency breaks the $1.2135," said Michael Hewson, market analyst at CMC Markets. This would represent a 50% retracement level, he noted.
The euro's also closing in on key support around the ��111 area, Hewson said. A break and close below that level could spark a move toward ��100.
Battered by the budget
Meanwhile, the British pound came under pressure as the newly formed government in London attempts to cut the U.K. deficit, amid revelations that the previous government pushed through some spending measures that will make that more difficult.
Earlier Monday, Chancellor of the Exchequer George Osborne said he would present an "emergency" budget on June 22 and will next week lay out details of 6 billion pounds ($8.9 billion) worth of spending cuts set to take effect in the current financial year.
The story line is somewhat similar to what sparked the Greek debt debacle, said Andrew Busch, global currency strategist at BMO Capital Markets.
"A new government is formed in Europe and problems ensue," he wrote in a note. "They check the books from the outgoing administration and discover things are worse than they knew. If this sounds familiar, it should as this is what happened in Greece. It is now occurring in the United Kingdom."
The weakness in the markets on top of the budget pressures could make the Bank of England contemplate renewing its bond-buying measures, which would also weigh on sterling, according to GFT analysts.
The pound (CUR_GBPUSD) fell 0.6% to $1.4443.
Copyright 2009 Dow Jones Newswires
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