The dollar held to tight ranges in holiday-thinned Asian trade on Tuesday, though its Australian counterpart eased as disappointing readings on Chinese manufacturing tempered hopes for a rapid rebound in global growth.
China's official purchasing management index (PMI) dipped to 50.1 April, when speculators had wagered on a steady outcome of 50.5 or even an improvement. A measure of services also disappointed with a pullback to 54.3.
A private-sector survey was no better with the Caixin PMI easing to 50.2 in March, from 50.8.
Still, the fallout was limited in part because investors assumed the numbers would encourage Beijing to continue with its stimulus measures.
"These results are still well above the average seen over the past six months and don't necessarily derail the 'economic stabilisation' narrative," said Sue Trinh, head of Asia emerging market forex strategy at RBC Capital Markets.
"That said, the data remain consistent with further policy support with speculation of targeted RRR (reserve requirements) cuts and structural reform in the pipeline."
The Aussie dollar suffered the most as it is often used as a liquid proxy for China plays given Australia is a major exporter of resources to the Asian giant. The currency eased to $0.7045 after the PMI release, from $0.7064, but soon steadied.
The safe-haven yen got a lift, with the Aussie losing 0.4 percent to 78.59, while the dollar dipped 0.1 percent to 111.50 yen. Against a basket of currencies, the dollar was off a fraction at 97.813 but not far from last week's 23-month peak of 98.330. It was still 0.5 percent higher for the month.
Trading was thin with Japan on holiday, and set to get thinner on Wednesday when China and much of Europe will be off.
The euro was little moved at $1.1187 as investors await figures for economic growth in the common currency bloc due later in the session.
Forecasts are for a modest rise of 0.3 percent in the first quarter, although that would still be faster than the previous quarter and may be taken as a sign of stabilisation.
Even such tentative growth could squeeze speculators who have been amassing large short positions in the euro, worth a net $14.8 billion in the week to April 23.
A major hurdle for the dollar remains the Federal Reserve's two-day policy meeting which ends on Wednesday with a statement and a news conference by Chairman Jerome Powell. No change in policy is expected but the market is keen to hear how Powell resolves the divergence between solid economic growth and slowing inflation.
US data overnight showed consumer spending enjoyed the sharpest rebound in 9-1/2 years in March, yet core inflation still slowed to a 14-month low.
The core personal consumption expenditures index, the Fed's favoured measure of inflation, slowed to 1.6 percent and further away from the central bank's 2 percent target.
"A sustained acceleration in core inflation remains elusive and is contributing to low inflation expectations," said ANZ economist Felicity Emmett. "This is not just an issue for the FOMC, it is a real concern for other major central banks." "We expect the dovish tone from central banks to continue for the foreseeable future," she added. "Given evidence of a recovery in growth, this is very positive for risk assets."
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