Forex News: Euro rises on PMI data

The euro rose broadly on Monday after the manufacturing sector in the euro zone showed signs of stabilising, while the dollar fell against the yen as a slip in equities kept the safe-haven Japanese currency supported.

Analysts said both the euro and the yen could, however, trade lower in coming months if economic data from the U.S., like this week's non-farm payroll figures, pointed to a sustained recovery in the United States.

This could give impetus to the view the U.S. Federal Reserve would scale back its $85-billion-per-month stimulus programme and drive the dollar broadly higher.

The euro rose after data showed the slump in euro zone manufacturing had eased significantly in May.

The euro was up 0.3 percent against the dollar at $1.3025. Resistance was cited at last week's high of $1.3062. Reported option expiries at $1.3000 could keep the currency pinned to that level.

The dollar faltered against the yen as losses for the Nikkei steepened, eventually closing down 3.7 percent, while European shares extended losses on Monday.

The dollar was last down 0.4 percent at 100.10 yen, its lowest in 3-weeks. Support was cited at 100 yen and a large option expiry was reported at 101.3 yen.

"Dollar/yen has been held hostage to the broader risk-off environment," said Alvin Tan, currency strategist at Societe Generale. "Market is very short yen and that means that it is vulnerable to further short covering in the yen, meaning a lower dollar/yen...if risk continues to be under pressure this week."

Tan however expects the dollar to rise to 108 yen by the end of the year. The Bank of Japan's aggressive easing policy is likely to keep the yen under pressure, analysts said.

"The obvious support is at 100 and it will be difficult for it to break that unless stocks fall an awful lot more," said Takako Masai, head of forex at Shinsei Bank in Tokyo.

The dollar has so far managed to stay above the 100 yen level as investors remain bullish on the dollar after the last strong non-farm payrolls raised expectations that the Fed may start unwinding its massive stimulus programme.

The dollar added 1.9 percent in May against a basket of currencies, spurring currency speculators to raise their bets in favour of the greenback to the highest since at least June 2008.