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The dollar fell and major rivals gained on Monday as risk appetite returned to currency markets and investors weighed up the possible impact of an expected U.S. rate hike this week.

Currency markets were choppy. The safe-haven dollar had initially gained in early European trading hours, following a cautious Asian session in which investors were worried about the global growth outlook. But the dollar started dropping around 0800 GMT while European stock indexes, which had opened in the red, gradually strengthened.

The U.S. Federal Reserve has signalled a 75 basis-point rate hike at its July 26-27 meeting, although data last week showing inflation hit 9.1% year-on-year in June raised the possibility of a larger 100 bps hike later this year.

Meanwhile, investors are paying close attention to company earnings. One sixth of Europe's STOXX 600 will report second-quarter results this week, with earnings expected to have grown 22% year-on-year, according to Refinitiv I/B/E/S forecasts.

At 1036 GMT, the U.S. dollar was down 0.2% at 106.49, while the euro was up 0.1% at $1.02195.

Neil Jones, head of FX at Mizuho, said the boost to the euro may have come from traders covering their euro short positions following the European Central Bank's decision last week to raise rates for the first time since 2011.

ACTIVITY DATA

The euro was boosted to a two-week high last week following the rate hike, but it then fell after disappointing business activity data from France and Germany.

ING's FX analysts said the euro's moves suggest that expectations around the European Central Bank's policy plans will be driven more by market data in future, highlighting euro zone inflation data due on Thursday and Friday.

"We think 1.0200 could prove to be an anchor for EUR/USD for the remainder of the summer, but re-testing parity is a tangible risk in the current high-volatility environment," ING said.

High energy prices and looming gas shortages have left Germany on the cusp of recession, according to the Ifo institute, whose business sentiment survey showed Germany business morale fell by more than expected in July.

A survey on Sunday showed that 16% of industrial companies in Germany were cutting production in reaction to soaring energy prices.

Top Western energy companies are expected to see record-breaking profits for the second quarter running.

U.S. economic growth is slowing and inflation is "way too high", U.S. Treasury Secretary Janet Yellen said on Sunday.

"Recession fears should continue to prevent a solid recovery in risk sentiment, which should incidentally give some extra support to safe-havens (including USD) and may keep the path uneven for high-beta commodity currencies," wrote ING FX analysts in a note to clients.

The Australian dollar was up 0.3% at $0.6948 while the New Zealand dollar was up 0.2% at $0.6267.

Versus the Japanese yen, the dollar was up 0.2% at 136.375.

The British pound was up 0.2% against the dollar at $1.2035 , while euro-sterling was steady at 84.955 pence per euro.

British Foreign Secretary Liz Truss and former finance minister Rishi Sunak set out plans over the weekend in their campaigns to be Britain's next prime minister.