The dollar fell across the board on Wednesday after a report showed the U.S. private sector created fewer jobs than expected last month, raising concerns that recovery in the world's largest economy has stalled.
The weaker-than-expected ADP national employment report followed soft U.S. manufacturing data on Monday which suggested that the economy, on fire the last few weeks due to a run of strong data, has lost some momentum. Still, analysts were willing to suspend judgment until Friday's U.S. non-farm payrolls report.
The ADP on Wednesday reported an increase of 158,000 in private employment, much lower than the consensus forecast of 200,000. It did revise February's number to 237,000 from its initial reading of 198,000, but that did little to lift sentiment.
(Read More: Work Slowdown? ADP Says Job Creation Slowing)
"The disappointing headline did dent some of the recent optimism surrounding the U.S. recovery and the overall improvement in labor markets," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "While the ADP and broader non-farm payroll numbers have not had the closest correlation over recent months, investors are likely to go into Friday's jobs report a bit more cautious."
Analysts were forecasting U.S. payrolls to hit 200,000 in March, with the unemployment rate seen holding steady at 7.7 percent.
Europe's common currency, however, looked vulnerable given a recent run of weak euro zone data that, when added to political turmoil in Italy and concerns over Cyprus, could lead European Central Bank President Mario Draghi to strike a dovish tone hours in his post-meeting comments on Thursday.
Against the yen, the dollar fell 0.5 percent to 92.96. The U.S. currency remained well off a 3 1/2-year high of 96.71 yen set last month.
Analysts said choppy moves in currencies were unlikely before the end of the Bank of Japan's April 3-4 policy meeting, in which it is widely expected to ramp up its bond buying and extend the maturities of the bonds it purchases.
The dollar has climbed around 20 percent against the yen since November, when markets first started pricing in more aggressive monetary easing from the BOJ.
As a result of wariness ahead of the meeting long positions in the dollar versus the yen have likely been pared back over the past few weeks, traders said. That lighter positioning may limit the scope of any drop in the dollar after the BOJ's decision on Thursday.