TOKYO: The euro and US dollar slipped on Tuesday after dismal data from Europe to the United States raised expectations for more action from central banks in both regions.
Investor hopes for the European Union's plan to support debt-laden countries turned to scepticism, which was further fanned by Monday's report showing US manufacturing contracted for the first time in nearly three years.
In the euro zone, the jobless rate rose to a record high in May, and a measure of factory activity held steady at its lowest level since June 2009, lending credence to those who believe the European Central Bank will cut interest rates at its policy meeting on Thursday.
The euro faced additional pressure from news on Monday that Finland and the Netherlands opposed a plan for the euro zone's permanent bailout fund to buy government bonds in the secondary market.
"Everyone thought it was strange that there was no follow-up to the EU announcement, and then it emerged that Finland and Holland objected to the plan, which disappointed some investors," said Kimihiko Tomita, head of foreign exchange for State Street Global Markets in Tokyo.
"The plan can't proceed if members don't agree, so there might be more bad news ahead for the euro," he added.
The announcement of the plan on Friday had sent the euro soaring about 1.7 percent, for its biggest one-day percentage gain since last October.
The yen outperformed most of its major counterparts and helped underpin high-beta currencies such as the Australian dollar ahead of a Reserve Bank of Australia decision later in the session, at which the central bank is expected to stand pat.
The greenback bought 79.65 yen, down from Monday's high around 79.98 yen, though off a session low of 79.41 yen. A Japanese megabank was seen bidding at 79.30 yen, a market participant said, while the pair's topside was capped at the top of its daily Ichimoku cloud around 80 yen.
Activity was relatively thin ahead of the Fourth of July US holiday, market participants said.
The euro garnered 100.26 yen, moving back above the 100-yen mark from a session low slightly below that level, but well below post-EU plan highs above 101.00 yen.
The dollar managed to outperform the single currency, which slipped to $1.2586 from highs just ahead of resistance at 1.2700.
Many traders expect the ECB to move to bolster the region's economy by cutting its main refinancing rate by 25 basis points to 0.75 percent at its policy meeting on Thursday.
Some expect the Federal Reserve to announce it will embark on a third round of asset purchases, known as QE3, perhaps as soon as the central bank's next policy meeting from July 31 to Aug. 1.
In contrast, Australia's central bank is widely expected to keep its 3.5 percent cash rate steady on Tuesday, following back-to-back cuts.
Traders said this could further bolster the Aussie. It was at $1.0268, not far from a fresh two-month high of $1.0279 set overnight. Immediate resistance is seen at $1.0289, the 78.6 percent retracement of its April 27-June 1 fall.
The Aussie reached a more than five-month high on the euro on Monday, which plumbed A$1.2240, a level not seen since late February.
The RBA will announce its rate decision at 0430 GMT.
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