NEW YORK (Reuters) - The dollar fell to one-week lows on Monday as investors questioned whether a rally that last week sent the greenback to more than four-month highs had run out of steam.
The dollar has gained as a rise in U.S. Treasury yields highlighted the wide interest rate gap between the United States and other countries.
But the surge was stymied by soft April U.S. consumer price data published last week that introduced doubts about expectations that the Federal Reserve would raise rates as many as four times in 2018.
“The momentum behind the dollar move is starting to stall a little bit,†said Mark McCormick, North American head of FX strategy at TD Securities in Toronto. “Where we are right now is markets are trying to figure out whether or not they want to take the dollar higher.â€
The index fell 0.29 percent on Monday to 92.270. It has fallen from 93.416 last Wednesday, the highest since Dec. 22.
Growing worries about the U.S. budget deficit, which is projected to balloon to more than $1 trillion in 2019 due to a government spending splurge and large corporate tax cuts, have also undermined the dollar, along with concerns about the country’s current account deficit.
“Barring a significant, and unlikely, pickup in productivity, a persistent USD rally is unlikely as the twin deficits crowd out private investment by raising borrowing costs,†Hans Redeker, global head of currency strategy at Morgan Stanley in London, wrote in a note.
The euro strengthened even as investors kept a wary eye on political events in Italy.
Italy’s anti-establishment 5-Star Movement and the far-right League, both hostile to European Union budget rules, spent the weekend in talks to forge a common policy programme. The parties were adversaries as recently as March but now appear likely to form Italy’s next government.
The euro gained 0.41 percent to $1.1991, having fallen last week to $1.1823, its weakest since Dec. 22.
Investors are focused this week on speeches by Fed and European Central Bank officials, as well as German data on Tuesday that is expected to show some slowdown in economic growth.
Additional reporting by Tom Finn in London; editing by Jonathan Oatis
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