The dollar rose slightly from record lows against the euro Monday as investors cashed out bets against the U.S. currency ahead of a fresh batch of economic data and central bank meetings this week.
The greenback pared some gains after a measure of September U.S. manufacturing activity hit its lowest level since March, but the gauge's employment measure registered growth, boding well for the main item of interest this week: Friday's payrolls data.
"The data will only encourage a view not to get too dollar short before this Friday's employment report," said Alan Ruskin, chief international strategist with RBS Greenwich Capital in Greenwich, Connecticut.
The Institute for Supply Management on Monday said its index of national factory activity fell to 52.0 in September from 52.9 in August, while its employment index rose to 51.7 from 51.3.
By late morning, the euro was down from late Friday against the dollar, after having scaled a record high earlier of $1.4281, according to Reuters data.
The dollar index, a gauge of the greenback's value against a basket of six major currencies, hit a lifetime low of 77.657, before rebounding to trade at 77.973, up 0.35% on the day.
In the last three months, the dollar index tumbled 5.1%, the biggest quarterly decline since the fourth quarter of 2004. Dealers said it was normal for currencies to back track after such dramatic moves in one direction.
The dollar climbed against the yen on the day, helped by soaring U.S. stock prices. The euro also rose versus the Japanese currency.
Investors warily reentered high-yielding, high-risk bets, many of which are funded by borrowing cheaply in yen.
The New Zealand dollar gained 1.6% against the yen , while the Australian dollar -- another high-yielding currency -- scaled an 18-year peak versus the U.S. dollar at U.S. $0.8926, and was up versus the yen . Both also got an additional boost from high commodity prices.
Yet analysts advised caution, especially since the current credit crunch may not have worked itself out completely yet.
"We do remain wary of this move back into risk, as we think there's likely further adjustment to come on the back of this financial crisis," said Todd Elmer, currency strategist with Citigroup in New York. "Deterioration in the U.S. outlook justifies a weaker dollar but we think there could be a bounce ahead if risk-reduction picks up," he said.
A cut by the Federal Reserve of its benchmark interest rate by half a percentage point to 4.75% last month to boost the U.S. economy has triggered a major downtrend in the dollar.
In addition to economic data this week, investors are looking out for the outcome of several central bank policy meetings. The Bank of England, the European Central Bank and the Reserve Bank of Australia all meet this week to set policy amid a global financial system still sensitive to tight liquidity.