The US dollar fell against major currencies on Monday as early negative sentiment stemming from weak Japanese growth data dissipated and traders decided the currency's rally last week was too fast. US stocks recovered from an early decline on global economic worries sparked by the disappointing Japanese data. That saw the greenback give up some of last week's gains when risk aversion had pushed it up more than 3 percent against a basket of currencies.
Currency investors shrugged off US manufacturing and housing data that pointed to weakness in the economy, though sentiment remained cautious overall with the safe-haven yen and the Swiss franc posting broad gains. "We saw risk aversion abating. Despite some weaker data out of the US including the NAHB (housing) index coming in weaker than expected, the market preferred to ignore that," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.
The ICE Futures US dollar index, which tracks the greenback versus a basket of currencies, was last down 0.6 percent to 82.477. The index gained 3.13 percent last week, the biggest weekly rise in nearly two years. The euro recovered against the dollar after falling almost 4 percent last week, its largest weekly drop since the week of May 9. It was last at $1.2815, up 0.5 percent, recovering from one-month lows hit in Asian trade.
The premium investors demand to hold 10-year Irish and Greek government bonds rather than German Bunds widened, while the cost of insuring their debt against default increased. Traders said the next downside target for euro/dollar is $1.2600, the 50 percent retracement level of the euro's June to August rally and a band of minor support is around 1.2730-40, the lows from July and August.
The dollar fell 1 percent to 85.32 yen with investors like hedge funds still preferring to go short on the greenback. The Swiss franc rallied, with the US dollar down 1.1 percent at 1.0395. The euro fell 0.6 percent to 1.3325 francs, having earlier dropped to its lowest since July 8. Traders said funds were lightening positions in euro/Swiss franc with sparse liquidity exacerbating the fall.