* Weak German data weighs on euro
* Fed meeting on Wednesday in focus for rate hike clues (New throughout, updates prices, market activity and comments to U.S. market open, new byline, changes dateline, previous LONDON)
By Karen Brettell
NEW YORK, April 30 (Reuters) - Weaker-than-expected German data hurt the euro against the U.S. dollar on Monday, with investors further unwinding short positions on the greenback that were based on assumptions that the European Central Bank was nearer to unwinding its stimulus.
German monthly retail sales unexpectedly dropped in March, dampening cheer around a consumer-led upswing in Europe's biggest economy. Regional data showed annual inflation in four German states steady in April.
“It adds to the recent spate of weaker data coming out of the eurozone and really underlines the fact that the ECB can afford to be a little bit patient in terms of ramping up its hawkish rhetoric when it comes to its QE policy,” said Bipan Rai, director of foreign exchange strategy at CIBC Capital Markets in Toronto.
Positioning data shows net long euro positions by speculators fell last week, albeit from a record high, suggesting investors remain overwhelmingly bullish on the single currency but are reducing those bets.
The dollar index rose 0.37 percent to 91.874, but held below Friday's high of 91.986, its strongest level since Jan. 11.
The dollar last week enjoyed its biggest weekly gain in more than two months. The euro dropped 0.44 percent to $1.2075, not far from its three-month lows last week of $1.2110.
U.S. data on Monday showed that consumer prices accelerated in the year to March, with a measure of underlying inflation surging to near the Federal Reserve's 2 percent target as last year's weak readings dropped out of the calculation.
Economists and Fed officials had anticipated the rise in the annual inflation measures reported by the Commerce Department on Monday, so it was not expected to alter the U.S. central bank's gradual pace of interest rate increases.
The Fed is not expected to raise interest rates when it concludes its two-day meeting this Wednesday though investors will be watching for indications that a rate hike is likely in June.
“If there is no smoking gun regards to this week’s statement for a June hike then you could see the dollar come under some defensive pressure,” Rai said.
Investors are also focused on Friday's employment report for April for further indications of the strength of the U.S. economy. (Additional reporting by Tommy Wilkes in London)