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Dollar retreats on weak data as new quarter begins

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The dollar slipped on Wednesday at the start of the second quarter as disappointing data on U.S. manufacturing and jobs growth raised bets the Federal Reserve might refrain from raising interest rates until late 2015 at the earliest.

The soft readings reinforced the notion that the recent surge in the greenback has hurt exporters and dragged on the economy, which would worry Fed policymakers.

Payroll processor ADP said U.S. companies added 189,000 workers in March, the fewest in 14 months, while the Institute for Supply Management said its index on U.S. factory activity fell to a lower-than-expected 51.5 last month.

"There's more uncertainty about the timing and pace of policy normalization from the Fed," said Eric Viloria, currency strategist at Wells Fargo Securities in New York. "We saw a negative reaction (from the data) that contributed to the weakness in the dollar."

After a tumultuous couple of weeks for many major currencies, volumes have eased and traders said the market would lighten further ahead of Friday's U.S. nonfarm payrolls numbers and the Easter holiday weekend.

Most U.S. markets will be closed on Friday, while a number of major European markets will shut on Friday and reopen on Tuesday.

Time to buy the euro?

Expectations the Fed was on track to end its near-zero rate policy later this year resulted in the dollar index posting a stellar first quarter, its strongest since the third quarter of 2008. As the new quarter kicks off, it was 0.16 percent lower at 98.20.

The greenback was down 0.30 percent against the yen at 119.70 yen as a soft Japanese business survey dented Japanese stocks but helped bolster the safe-haven yen.

Read MoreJapan 1Q manufacturing sentiment steady: Tankan

Earlier, the euro strengthened on encouraging European data after coming off the worst quarter in its 15-year history.

Slightly improved final readings of last month's purchasing manager surveys in France and Germany, and healthy figures in Italy and Spain, provided more signs that euro zone manufacturing is recovering from a low base.

The euro was up 0.2 percent versus the dollar at $1.0763. Its gains were limited by the absence of a deal between Greece and its creditors, and record low euro zone yields stemming from the European Central Bank's 1.1 trillion euro bond purchase program.

The euro dipped 0.07 percent at 128.84 yen and slumped to a seven-week low against the at 1.04025 franc.