Dollar rose against euro as a credit rating firm downgraded sovereign rating on Ireland. In addition, investors raised bets the Federal Reserve will increase the target lending rate by the end of this year as the more data showed the economy of the U.S. reached the trough and it is recovering.

The single currency fell from its intra-day high of 1.4004 against the greenback to as low as 1.3806 as Standard & Poor’s downgraded Ireland’s sovereign credit rating for a second time this year to AA in London morning trade. The rumours of nationalization of a major German bank also weighed on euro. However, in late New York afternoon, euro pared its losses against the dollar after an Executive Board member, Juergen Stark, said that the European Central Bank will reverse the current low interest rate policy once the economy starts to recover and inflation risk increases. Stark also stated that although the eurozone economy has contracted about 4% in the last two quarters and the second quarter would shrink further, the pace was slowing. Eur/usd rebounded to 1.3929 in U.S. session.

In European morning session, the British pound remained under pressure against the greenback as Prime Minster Gordon Brown confronted a fresh attempt to force him out following support for his ruling Labour Party in European elections plunged to its lowest level in a century. However, cable found good buying interest on dips and it rebounded from its intra-day of 1.5803 in late New York afternoon as the British PM Gordon Brown won over Labour members of parliament after admitting mistakes and taking responsibility for a week of political turmoil. Cross buying in sterling also helped, gbp/jpy rallied from 155.57 to 158.49 while eur/gpb tumbled from 0.8796 to 0.8649.

Data to be released on Tuesday include Japan leading indicators, Australia NAB business confidence, German current account, trade balance, U.K. BRC retail sales, RICS and DCLG house price, German industrial production, U.S. wholesale inventories and Treasury’s Geithner will testifies on department budget on Tuesday.