NEW YORK: The dollar fell from one-month highs against the euro and slid to two-week lows against the yen in light trading on Monday as weaker-than-expected data on the US services sector reflected slowing growth at the end of last year.
The greenback's losses accelerated after separate readings showed US services sector growth slowed in December, pointing to an economy that continues to expand, but at a modest pace.
"The dollar's quick dash out of the gates this year encountered a few speed bumps on cooler US services growth last month and caution ahead of risk events this week involving the Federal Reserve and the government's monthly jobs report," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
Data showed that the pace of growth slowed for a second straight month in December, with business activity expanding at a lower rate and new orders contracting, according to the Institute for Supply Management.
Separately, financial data firm Markit said its services sector Purchasing Managers Index dipped to 55.7 from 55.9 last month.
The reports affirmed expectations that the US central bank will pare its monthly bond purchases at a gradual pace this year.
New orders for US factory goods, however, rebounded in November, adding to signs of strong economic momentum in late 2013.
Trading was light at the start of this week as the Fed's December meeting minutes, due on Wednesday, could hint at the timing and pace of any further reductions in stimulus and set the pace for trading in the early part of the year.
Friday will bring the US non-farm payrolls report for December, which could shed light on whether domestic job growth is strong enough for the Fed to continue tapering its asset buying.
The dollar index, which tracks the greenback against a basket of six major currencies, last traded down 0.2 percent at 80.668 after hitting 80.910 earlier in the global session - its highest since Dec. 4.
The euro benefited from positive euro zone data that suggested the European Central Bank will not loosen policy further anytime soon.
The euro recovered from a one-month low to trade 0.33 percent higher at $1.3630, finding support as euro zone sentiment hit its highest in nearly three years.
The euro was down 0.3 percent at 142.02 yen.
The euro zone Composite Purchasing Managers Index, which gauges how thousands of manufacturing and services companies fare every month, rose to 52.1 in December, in line with forecasts, with readings above 50 indicating growth.
The upbeat euro zone data came ahead of the European Central Bank's first policy meeting of 2014 on Thursday. While another rate cut after November's surprise move is seen as unlikely, the bank has the ability to issue further cheap loans to banks.
"The big question is whether the recovery in the euro zone is real or sustainable. This indicates at least it isn't faltering," said Marshall Gittler, head of global FX strategy at IronFX Global in Limassol, Cyprus. "There's no need (for them) to come out with a sudden move."
The yen, meanwhile, pulled away from recent five-year lows versus the dollar and the euro as a fall in global stocks prompted traders to buy the safe-haven Japanese currency.
Asian shares led global stocks lower after growth in China's services sector slowed sharply last month.
The Nikkei and the yen - the weakest major currency of 2013 - tend to move in opposite directions.
"Are we seeing market positioning adjustments or are we seeing a technical reversal?" said Marc Chandler, chief global currency strategist at Brown Brothers Harriman & Co. "I think this is largely market positioning and adjusting of positions. There's no fundamental catalyst for this."
The dollar was last down 0.5 percent to 104.26 yen, according to Reuters data. That was the largest daily percentage drop since October. January 7, 2014
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