The euro started the second quarter of 2012 lower against the dollar and yen on Monday as weak European manufacturing data reflected a growing divide between the economic outlooks of the United States and the euro zone. Manufacturing strengthened in the United States and China in March. It contracted in the euro zone for the eighth straight month.
Reports from the eurozone, which is teetering on the brink of recession, showed the downturn in the region's peripheral economies has spread to core countries Germany and France, according to purchasing managers' indexes (PMIs) for March. The outlook was grim as new orders fell across the region for the 10th month.
The weak data should keep European Central Bank monetary policy accommodative. At the same time, the US Federal Reserve is expected to keep rates at near zero until 2014. "We are looking at interest rates that are low in both the US and Europe and that is why the euro has been stuck in a range, trading within the $1.33-$1.3350 area," said Daniel Wang, senior currency strategist at Forex.com in New York.
The euro last traded at $1.3324, down 0.1 percent on the day, and below a recent one-month high of $1.3385, according to Reuters data. The euro has traded between $1.33-$1.3380 since March 26. Resistance of euro/dollar is at $1.3380, but a break could ignite a quick move to $1.35, Wang said.
The Federal Reserve on Tuesday will release minutes from its last policy meeting. Two Fed policymakers on Monday signalled little appetite for further monetary steps to stimulate US growth while persistently high inflation will prevent the ECB from doing anything new on Wednesday.
"PMIs out of Europe are another reminder of the extent economies have gone down," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange in Washington, D.C. "Strong US data this week is likely to see the dollar strengthen on rising yield appeal."
The dollar last traded down 0.9 percent at 82.02 yen and the euro down 1.1 percent at 109.28 yen. Forex.com's Wang said yen strength was largely due to hedge funds and real money accounts covering short positions on the first day of the quarter.
The dollar and euro are up 6.6 percent and 9.8 percent against the yen year-to-date, respectively. Nomura Securities said there are a number of forces which point to yen weakness over time, including weakening trade flows, accelerating outflows from Japan and a potentially a more proactive Bank of Japan. The Australian dollar was up around 0.8 percent for the day at $1.0420, though off a high of $1.0449 touched earlier in the global session.
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