Dollar retreats slightly from 4-year high vs euro

The euro recovered slightly from a four-year low and the pound from a 14-month low against the dollar Monday, while markets continued to question how Europe will pull itself from its financial mess without hurting a global economic recovery.

The euro sank as low as $1.2237 in overnight trading, its weakest point since April 2006. In late trading in New York, it bounced back up to $1.2392, above $1.2385 it bought late Friday.

The faltering euro dragged down other European currencies. The British pound tumbled to $1.4253, the weakest point since March 2009, in Asian trading before recovering to $1.4493 in the late New York trading. That's still down significantly from $1.4560 late Friday.

The dollar traded at 1.1311 Swiss francs, up slightly from 1.1308 francs late Friday. It had earlier climbed as high as $1.1445 francs, its strongest level since April 2009.

The euro has dropped nearly 10 cents this month, a decline that accelerated last week after European officials warned that the 750 billion-euro rescue package to prevent the Greek debt crisis from spreading was not enough.

Countries such as Greece, Portugal and Spain must make hefty cuts in spending and raise taxes in order to get budget deficits in line, experts say.

"The severe nature of the austerity measures being imposed on countries in exchange for bailout cash has caused a crisis of confidence about future growth levels, and could well precipitate the debt defaults it was designed to avoid," said Michael Hewson of CMC Markets in London.

The European Central Bank's plan to buy government debt could also contribute to inflation, and it is expected that the ECB will be one of the last major central banks to raise interest rates.

Raising rates can help contain inflation.

The euro "is being shunned altogether," said Geoffrey Yu, a currency strategist with UBS, in a research note. UBS said the number of bets predicting further declines in the euro was at a record high. It lowered its forecast for the euro to $1.15 within three months from $1.30.

In other late trading, the dollar rose to 92.54 Japanese yen from 92.21 yen and inched up to 1.0343 Canadian dollars from 1.0321 Canadian dollars.