NEW YORK: The dollar dropped against most currencies on Monday while the yen slid to its lowest in nearly four weeks versus the greenback as better-than-expected manufacturing data from Europe and Japan raised risk appetite and prompted investors to seek assets offering higher returns.
Overall the array of data painted a picture of a more stable global economy and provided relief for some of the risky assets that have recently sold off due to the prospect of reduced stimulus measures from the Federal Reserve.
Manufacturing reports out of the euro zone, Japan, and the UK all showed improvement, lifted the euro and other riskier currencies such as the Australian and New Zealand dollars. There were also encouraging signs out of the debt-burdened peripheral countries in Europe such as Spain and Italy.
US manufacturing activity grew last month, rebounding from an unexpected contraction in May, but hiring in the sector was the weakest in nearly four years, underscoring the challenges still facing the American economy.
"The (US) data is not that strong that it changes the Fed equation meaningfully, other than it fits with the US manufacturing sector stabilizing after a soft patch, and works with the idea of reduced downside risks," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.
Data from the euro zone showed the manufacturing purchasing managers' index hit a 16-month high, suggesting a downturn in the sector was easing. British manufacturing, meanwhile, grew at its fastest pace in more than two years, while sentiment among Japan's manufacturers improved markedly.
In early afternoon New York trading, the dollar was up 0.6 percent at 99.72 yen after hitting a peak of 99.86, its highest since June 5.
Expectations the Bank of Japan will continue with aggressive monetary easing also weighed on the yen, with the euro up 1.0 percent at 130.18 yen.
The euro was up 0.3 percent at $1.3052, recovering from last week's dip to $1.2983, its lowest since early June. Nevertheless, it stayed below chart resistance at $1.3106, the 100-day moving average, and the 200-day average at $1.3074.
The dollar index, which measures the dollar's value against a basket of major currencies, was down 0.2 percent at 82.992, below a four-week peak of 83.344 reached on Friday.
Friday's US payrolls report will be key. A strong reading would boost the dollar by fanning speculation about an early paring back of the Fed's $85-billion-a-month bond-buying. An improving domestic economy should give the US currency a big advantage over the euro and yen.
In contrast to the Fed, the European Central Bank is likely to emphasise at its monthly meeting on Thursday that the euro zone economy still needs help.
The Bank of England and the Reserve Bank of Australia also hold policy meetings this week.
"The US recovery is continuing at a lackluster pace but it is still faring much better than everywhere else," said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman in New York.
"Whether the Fed decides to start scaling back on its bond buying at its September meeting or later in the year, it is still poised to start reversing its unorthodox monetary policy earlier than other central banks, which is firmly supportive of the dollar," he said.
The Australian dollar hit a three-year low of US$0.9105 before recovering to last trade at US$0.9238, up 1.1 percent. The British pound was flat at $1.5216.
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