This has prompted expectations European Central Bank President Mario Draghi would strike a more dovish tone at Thursday's monetary policy outlook meeting. He could also provide hints about a possible rate cut.
"The data does ... confirm that the outlook for the euro zone has deteriorated over the last month on almost all fronts, including economic, banking sector and EMU (European Monetary Union) perspectives," said Camilla Sutton, chief currency strategist at Scotiabank in Toronto.
(Read More: Euro Zone Factories Suffer, but No Cyprus Impact Yet: Survey)
"We expect euro zone fundamentals to deteriorate further—this combined with outflow pressures should keep the euro's downward trend intact," she said. Sutton expects the euro to close the year at the $1.25 level.
The euro was last down 0.2 percent against the dollar at $1.282, within sight of a four-month low of $1.2750 hit last week.
Euro zone purchasing managers' surveys added to concerns about the single currency's outlook by showing a deepening decline in manufacturing activity in March, with Italy and Spain particularly weak.
(Read More: Over 50% of Under 25s Remain Jobless in Greece, Spain)
Further weighing on the euro and its outlook was the resignation of Cyprus' finance minister after concluding a 10 billion euro bailout deal with international lenders in which the country slashed its dominant banking sector and hit depositors with losses.
Michael Sarris, a lead player in talks with International Monetary Fund and European Union lenders, said he had completed his task but also that he was likely to come under scrutiny in an investigation into the crisis.
Europe's common currency was expected to stay below chart resistance at the March 23 high around $1.3050, also due to concerns about Cyprus' bailout and possible ramifications for other indebted euro zone countries. Analysts have identified Slovenia as possibly the next euro zone candidate for a bailout.
"Through the Cypriot crisis, investors have been dealt a strong reminder that the euro zone crisis is alive and kicking despite the generous weight of liquidity that has been so effectively insulating investors from bad news in recent months," said Jane Foley, senior currency strategist, at Rabobank in London.
Investors were also cautious before Thursday's ECB meeting. Although interest rates are expected to be left on hold, analysts saw a small chance of a cut.