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By Veronica Brown
LONDON, April 29 (Reuters) - The euro hit a four-week low versus the dollar on Tuesday as poor economic data was seen denting hawkish monetary policy sentiment, while the greenback firmed on views that the U.S. rate-cutting cycle could end soon.
French consumer confidence fell to its lowest since 1987 when the data series began, adding to a view that the euro zone economy, and by extension European Central Bank policy, isn't insulated from problems pushing the U.S. economy to the verge of recession.
Spanish calendar-adjusted retail sales fell a record 5.5 percent in March, while German April inflation figures on Monday undershot forecasts with the annual rate slowing sharply.
By contrast, while the Fed is widely expected to cut borrowing costs by 25 basis points to 2.0 percent, there is growing speculation that a cut on Wednesday will mark the end of its easing campaign (for more, click on [nFEDAHEAD]).
"Markets are positioning for a rather hawkish Fed statement in the sense that they are preparing to signal a pause ... at the same time we've seen easing inflation from Germany," UBS currency strategist Geoffrey Yu said.
"Given that Germany is still the dynamo of growth in the euro zone, if prices pressures are coming down there that might be a leading indicator of price pressures elsewhere -- this will give the ECB room to become less aggressive on rates ahead," he added.
ECB Governing Council member Nout Wellink said slower German inflation was no reason to alter ECB policy, but the comments did not reverse the single currency's fall. Euro zone interest rates currently stand at 4 percent.
The euro was down 0.6 percent to $1.5559, having earlier hit a four-week trough at $1.5542 <EUR=> and was down 0.5 percent at 162.11 yen <EURJPY=>.
The dollar was steady at 104.10 yen <JPY=>, on track for its best month in four years. Asian trading turnover was very light as the Tokyo market was shut for a holiday.
Bank stress stemming from the continued crisis in credit markets saw further fallout in Europe as Deutsche Bank made its first quarterly loss in five years, leading it to reveal further writedowns of 2.7 billion euros [nL28449038].
CLOSE EYE ON DATA
The euro looks to be heading for its steepest monthly decline against the dollar in almost a year. It also plumbed a four-week low against the pound at 78.30 pence <EURGBP=>.
The dollar index was on track for its best month since November 2005 .DXY, benefiting from the view that interest rates are bottoming out.
However this week's data on growth, consumption, manufacturing and payrolls is likely to show the U.S. economy is still deteriorating, implying there is still some risk that rates are set to fall further.
U.S. consumer confidence data at 1500 GMT will be watched for more insight into the extent of the U.S. slowdown.
"Sentiment has been beaten down since the credit crisis began in the wake of haemorrhaging in the housing market," said Calyon in a note to clients.
"The index fell by 15.6 percent in March, a much bigger than expected fall but this does not mean that it will stop falling any time soon."
Gross domestic product data on Wednesday could show the economy actually shrank in the first quarter and Friday's payrolls report is expected to show a drop of 80,000, according to economists polled by Reuters. (Reporting by Veronica Brown; editing by Stephen Nisbet)