Foreign exchange strategists are struggling to explain the euro's failure to gain much ground on the events following the September 11 terrorist attacks in the US, given that in the preceding two months it had risen by more than 5 per cent against the dollar..

At $0.9051 at about 1230 GMT on Tuesday, the euro stood just 0.7 per cent higher than its level before the attacks. In the interim, the single currency's short-lived gains peaked at 3.6 per cent.

The current political and economic uncertainties are making investors cautious, a mood which tends to benefit the dollar, the world's leading currency, analysts said.

"The forex markets are still waiting to gauge the full economic impact of the events of September 11 and there's a lack of appetite for risk," said Michael Metcalfe, strategist with Credit Agricole Indosuez.

US economic data since the attacks have not yet reflected the full impact of attacks and the markets are braced for more bad news. But, strategists point out, while the US economy is clearly struggling, other leading economies are also fighting a downturn.

"If investors are looking to dump dollar assets, you have to point out that it's not just the US economy in trouble here," said Tony Norfield, global head of FX strategy at ABN Amro.

Said Mr Metcalfe of Credit Agricole: "Where do you go? Economic uncertainty in all major economies is probably as high as its been this year but foreign exchange volatility is approaching its lows for the year - people simply aren't willing to take new positions at the moment."

German data this week is expected to show the eurozone is far from immune to the US woes and has led to unfavourable comparisons between the European Central Bank's narrow focus on price stability and the US Federal Reserve's aggressive easing of monetary policy, aimed at bolstering the economy and markets.

Last week, the ECB kept interest rates on hold despite pressure for a further easing. The bank cut rates by half a percentage point on September 17, following the Fed's similar move, but last week insisted its mandate was to achieve price stability, not growth.

"The fact that the ECB hasn't signalled they're there to support growth means the euro is vulnerable to weaker data," said Mr Metcalfe.

On Friday, the Ifo Institute's survey of the business climate in Germany is expected to fall to a five-year low around 88 from 89.5 in August.

Analysts have also looked to longer-term trends to explain the dollar's relative strength.

"When the dollar has weakened in recent years, this has been driven by short-term money and as the weeks go by, the short-termers change their minds and the long-term trend comes back into play," explained Mr Norfield. "This (short-term activity) was the reason behind the euro's rise in the June to September period."

But strategists warn that long-term trend favouring the dollar could be broken by signs of a prolonged downturn in the US economy.

"The Fed's dramatic easing this year has cushioned the FX market from the worst of the slowdown in growth," said Mr Metcalfe. "But US interest rates clearly can't keep falling and any more downside for the economy is going to weigh on the dollar."