NEW YORK: The dollar fell to a nearly four-week low against the yen on Monday as softer-than-expected US manufacturing data suggested the economy may have run out of steam at the end of the first quarter, interrupting a recent run of generally upbeat data.
The euro, meanwhile, fell to a more than one-month trough versus the yen as investors favored the safe-haven Japanese currency following unexpectedly weak Chinese factory activity and renewed uncertainty in the Korean peninsula.
Volume was thin, with many markets still closed for Easter holiday, and the low liquidity led to exaggerated currency moves.
US factory activity grew at the slowest rate in three months in March, according to the Institute for Supply Management. Its index of national factory activity fell to 51.3 last month from 54.2 in February. A reading above 50 indicates expansion in the manufacturing sector.
China's official Purchasing Managers Index reached 50.9 in March, below market expectations of a jump to 52 from February's 50.1.
"The dollar sold off versus the yen after the disappointing ISM data, but trade is very thin and investors are likely using the data as an excuse to lighten dollar positions ahead of this week's events," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.
Both the European Central Bank and Bank of Japan are to hold monetary policy meetings later this week.
With the path of Federal Reserve policy largely hinging on the state of the US labor market, Friday's US monthly payrolls data has the potential to sway financial markets.
"There is a lot of optimism already priced into the dollar regarding the US economy, and the dollar could be poised for a sell-off should upcoming data disappoint," Esiner said.
The greenback has rallied broadly this year as evidence mounted that the US economy is on a stable path to recovery. The dollar index has gained about 3.6 percent so far in 2013.
"There are some clear signs that recent growth momentum in the manufacturing sector will not be easily built," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York. "The data will tend to undercut some of the enthusiasm in the long dollar exposure."
Even so, Ruskin said out the US manufacturing report was not all "gloom and doom," with both the employment and new orders components posting new highs.
Against the yen, the dollar fell 0.9 percent to 93.34 yen after earlier falling as low as 93.16, the lowest since March 6. The euro dropped 0.7 percent to 119.94 yen, the lowest since Feb. 27.
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