Dollar Falls As Euro Zone Inflation Heats Up 

The dollar went back on the defensive against the euro Monday morning, giving back its gains from the previous session amid the release data confirming that euro zone inflation is heating up.

Policy makers at the European Central Bank have insisted that price stability is their primary concern, meaning that an interest rate hike may on its way sooner than forecast.

On the flip side, the Federal Reserve in the U.S. is widely expected to keep interest rates at a record low near zero for the rest of 2011.

The euro is likely to strengthen if the interest rate gap widens, even as the euro area struggles with sovereign debt problems on its periphery.

Eurozone inflation rose further in January, staying above the European Central Bank's target for the second straight month.

The harmonized index of consumer prices, or HICP, climbed 2.4% year-on-year, faster than the 2.2% rise in December, flash estimate from the European Union statistical agency Eurostat showed Monday. Economists had expected a rate of 2.3%.

The dollar dropped to $1.3685 versus the euro, down from $1.3570 last night. With the loss, the dollaredged back toward last week's 2-month low of $1.3757.

There was little movement versus other major currencies. The buck edged a hair below parity versus itsCanadian counterpart, and was stuck near Y82 against the yen.

The dollar barely budged at CHF 0.94 versus the Swiss franc, staying near a recent record low of CHF 0.9299.

Looking at today's economic calendar from the U.S., the Bureau of Economic Analysis will release its personal income & outlays report for December at 8:30 AM ET. Economists predict that the report might show that personal income rose 0.4% and personal spending increased 0.5% in the month.

The results of the Institute of Supply Management-Chicago's business survey for January will be released at 9:45 a.m. ET. Economists expect the business barometer index based on the survey to remain unchanged at 65.

In news out of Asia, industrial production in Japan rose a seasonally adjusted 3.1 percent in December compared to the previous month, the Ministry of Economy, Trade and Industry said in a preliminary report on Monday, rising for the second straight month.

That beat forecasts for an increase of 2.8 percent following the 1.0 percent rise in November.