Dollar falls vs. euro on talk of fiscal union

SAN FRANCISCO (MarketWatch) � The euro gained ground on the dollar Monday on speculation that European leaders will move to strengthen fiscal union across the shared-currency region.

Earlier in the session, the euro EURUSD pushed past $1.25 a few times only to retreat. The currency traded at $1.2493 in recent activity, but higher than $1.2422 in late North American trade on Friday.

The euro had slipped as low as $1.2384 during Asian trading hours, approaching its lowest level in nearly two years. The shared currency hasn�t closed above $1.25 since late May, according to FactSet Research.

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Analysts also said traders may be forced to reverse some positions which are heavily tilted towards further declines in the shared currency.

Overall activity was light, with London markets closed for a public holiday.

News reports over the weekend indicated European officials are weighing a move to increase fiscal coordination across the euro zone. The Wall Street Journal late Sunday said Germany has signaled it may be open to euro bonds or further support for the region�s banking sector, provided other countries agree to transfer more power to Europe. Read about the report.

�Such policy would move the [euro zone] toward a much more integrated fiscal union providing much better credit support for the region including the prospect of euro bonds,� said Boris Schlossberg, director of currency research at GFT.

The Journal report noted there was no guarantee European leaders will overcome differences, saying that calls to give up sovereignty over national budgets are likely to meet fierce resistance in some member states. It also could take several quarters or even years to make it possible, analysts said.

Robert Lynch, a currency strategist at HSBC, said talk of Germany warming up to supporting the banking sector wasn�t likely much of a factor in supporting the euro on Monday.

�It�s far more speculative than tangible at this stage,� Lynch said.

Support in the euro Monday was more likely the result of the lack of negative news out of Europe over the weekend, alleviating pressure from the past week, Lynch said.

The dollar index DXY , which measures the greenback�s performance against a basket of six major currencies, declined to 82.528 from 82.878 Friday.

The dollar fell Friday, after official data showed the U.S. added just 69,000 jobs in May, far below analysts� expectations. Read more about the payrolls report.

/quotes/zigman/4868099/sampled USDJPY 78.7450, +0.0340, +0.0432%

Against the Japanese yen, the dollar USDJPY rose to 78.33 yen after briefly trading below the �78 mark earlier in the day.

On Friday, the dollar had dropped to a low of �77.63 but ended North American trading at �78.14. Read about yen, payrolls report.

The yen which, like the dollar and the Swiss franc, is widely considered to be a safe-haven currency, generally tends to rise during periods of market volatility.