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Euro knocked down by German PMI data, dollar firms

The euro struggled on Monday, hurt by signs that growth was slowing in the euro zone's largest economy, Germany, though investors were also wary of buying the dollar as they awaited more evidence of a U.S. recovery.

The euro earlier jumped to a European session high after surveys showed French business activity grew in March at its fastest in more than 2 1/2-years, beating forecasts for further contraction in the bloc's second-largest economy.

The currency quickly gave up those gains after data showed the German private sector slowed in March, disappointing investors who were positioned for a better reading.

The euro was trading below $1.38 after the German data, which left it down 0.1 percent on the day.

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Partly supporting the euro has been the perception that the European Central Bank is reluctant to ease monetary policy any further. The euro's resilience prompted the president of the European Council, Herman Van Rompuy, to complain on Friday that the currency was too strong for euro zone exporters.

Governing Council member Erkki Liikanen said on Monday that the ECB keeps a close eye on the euro to see how it affects inflation, ramping up efforts to talk down the currency.

The euro's losses saw the dollar index add 0.15 percent to trade around 80.21.

Investors snapped up the dollar last week as they bet on a U.S. interest rate hike early in 2015, after new Fed Chair Janet Yellen surprised markets by raising the prospect of such a move.

Traders said further gains for the dollar now depended on the strength of coming data. Any acceleration in the U.S. economic recovery is likely to bolster expectations of an earlier normalization of Fed policy.

FX volatility falls

The dollar was up 0.3 percent against the yen above 102 yen with buyers eyeing the March 19 high of 102.69 yen.

Implied volatility—a gauge how sharp currency swings will be—is near multi-month lows. Analysts said that suggested the yen, a safe-haven currency, is likely to underperform.

A recovery in the Chinese yuan helped the Australian dollar recover from lows. The Aussie, which is used as a more liquid proxy by investors and speculators to back their views on China, had dipped after a survey showed activity in Chinese factories contracted again in March.

China's flash Markit/HSBC Purchasing Managers' Index fell to an eight-month low of 48.1 in March from February's final reading of 48.5.

The Aussie traded around $0.91, roughly 0.3 percent higher on the day.

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—Reuters

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