The weaker than expected German ZEW survey will limit the scope for Euro gains with evidence of capital outflows

The US currency weakened sharply in European trading on Monday with a low near 1.5520. The dollar was unsettled by a sharp rise in oil prices to record highs, although crude did retreat from its best levels later in US trading which helped the US currency rebound from lows.

The German ZEW weakened to -52.4 in June from -41.4 the previous month which was the lowest reading sine 1993. The renewed deterioration will increase fears that the Euro-zone economy is under pressure, especially as the ZEW warned over worsening loan conditions. The institute also stated that the prospect of higher interest rates was one factor behind the deterioration in confidence.

Any evidence of policy divisions within the ECB or national governments would also unsettle the currency. Lower US yields were the dominant factor and the dollar retreated to 1.5550 in early Europe on Tuesday before consolidating around 1.5510 while the Euro retreated after the ZEW data, although the currency was finding support on dips to near 1.5460.