The euro fell Monday, after the European Central Bank injected cash into the banking system for a third straight day, reminding investors that Europe was not immune from credit problems originating in the United States.
Diminishing investor expectations for European rate hikes, as policy-makers grappled with credit concerns, also weighed on the euro, analysts said.
"Demand for the euro is coming down because the currency and their markets are no longer insulated from possible subprime losses in the U.S.," said Omer Esiner, a market analyst at Ruesch International in Washington. "On top of that, people now are not so sure about a rate hike in Europe and that is another drag."
The ECB injected 47.67 billion euros into the euro-zone money markets in a one-day tender on Monday to replace Friday's special three-day tender for 61.05 billion euros.
Meanwhile, slightly stronger U.S. July retail sales data and a rebound in Wall Street lent additional support to the dollar versus the euro and contained the greenback's decline against the Japanese yen.
In mid-afternoon trading in New York, the euro was down 0.58 percent against the dollar, at $1.3612.
The euro was down 0.4 percent against the yen at 161.39 yen.
The greenback edged higher against the yen at 118.21 yen, after earlier dropping as low as 117.66, according to Reuters data.
A government report showed U.S. retail sales in July were slightly higher than expected. More market-moving data is on tap this week, including readings on producer and consumer prices, as well as reports on housing starts.
"The U.S. consumer had a decent attitude in July," said Brian Dolan, director of FX research at Forex.com in Bedminster, N.J. "The dollar rose here after the data."
High-yielding currencies such as the British pound and New Zealand dollar also continued a weak run, as investors unwound carry trades where low-yielding currencies had been sold to fund purchases of higher yielding assets.
"Risk aversion remains high and that is hurting carry trades," said Esiner at Ruesch.
The pound was down 0.6 percent versus the dollar to $2.0125 and the New Zealand dollar was down about 1 percent to US$0.7382.
"Risk aversion is deeply entrenched as the unfolding events in the structured credit and subprime markets spill over into the real economy, which has hit high-yielders," Michael Klawitter, currency strategist at Dresdner Kleinwort said.
Until liquidity fears really started to grip markets last week, investors were convinced the ECB was on track to raise rates to 4.25 percent next month. These expectations now are at about 65 percent.
In the U.S., rate futures are pricing a 68 percent chance of an emergency intermeeting rate cut by the Federal Open Market Committee this month. Earlier on Monday, an intermeeting August rate cut was fully priced after ending Friday at about a 33 percent chance.