The euro opened the second quarter of 2012 lower against the dollar and yen on Monday as weak European manufacturing data highlighted a growing split between the economic outlooks of the United States and the euro zone.
Manufacturing strengthened in the United States and China in March while the euro zone contracted for the eighth straight month.
Reports from the euro zone, which is teetering on the brink of recession, also showed the downturn in the region's smaller nations has spread to core countries Germany andFrance, 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, but at the same time the U.S. Federal Reserve is expected to keep rates at near zero until 2014.
"We are looking at interest rates that are low in both the U.S. 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.
"Until we see more solidified views from either the Fed or the ECB, the euro/dollar should remain range bound."
The Federal Reserve on Tuesday will release minutes from its last policy meeting.
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.
"PMIs out of Europe are another reminder of the extent economies have gone down," said Omer Esiner, chief market analyst with Commonwealth Foreign Exchange inWashington, D.C. "Strong U.S. data this week is likely to see the dollar strengthen on rising yield appeal."
Traders said negative sentiment toward euro zone assets arose on reports theBundesbank would not accept the bonds of several countries, including Portugal, as collateral. Germany's central bank later denied the reports.
YEN LEAPS ON SHORT COVERING
The dollar last traded down 0.8 percent at 82.14 yen and the euro down 1.3 percent at 109.48 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 Japanese currency was earlier undermined by a weaker-than-expected reading of the Tankan survey of sentiment at big Japanese manufacturers, which put the spotlight on whether the Bank of Japan will ease monetary policy further as early as next week.
The dollar/yen spiked in response to the disappointing Tankan, but retreated to retest the bottom of its two-week trading range around 82.00.
"The Bank of Japan is likely to come under more pressure to ease policy as soon as next week's meeting," Brown Brothers Harriman wrote in a report. "While stepping up its asset purchase program is one option, we suspect the BOJ could increase its fund provisioning measures to stimulate business sentiment instead.
The Australian dollar was up around 0.8 percent for the day at $1.0416, though off a high of $1.0449 touched earlier in the global session.
The currency tends to benefit from any signs of improvement in the Chinese economy due to Australia's strong trade links with the country. But many analysts have recently expressed concerns it is overvalued.
"The Chinese recovery is modest ... We like to sell Aussie on any rally," said George Saravelos, G10 currency strategist at Deutsche Bank in London.
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