The dollar dropped against the euro and yen on Wednesday, in line with falls in equities and Treasury yields, amid worries about global growth following data a day earlier that showed a sharp decline in U.S. manufacturing activity.
A U.S. payrolls report on the private sector showed a lower-than-expected figure for September, but market participants were relieved the data was not as bad as many initially feared especially in the wake of poor U.S. manufacturing numbers. Data from the U.S. payrolls processor ADP showed that U.S. private sector jobs totaled 135,000 last month, lower than the 140,000 consensus forecast.
The dollar initially trimmed losses against the yen and euro after the U.S. jobs data.
"With the ADP report, the initial reaction was mild relief that the numbers weren't worse because yesterday the horrible ISM (manufacturing) data had a pretty weak employment component," said Erik Bregar, director and head of FX strategy at Exchange Bank of Canada in Toronto. "But that initial move is fading now. Arguably, something is not right here. The U.S. ISM report proved that and I really wonder when the Fed's going to stop pretending that everything is okay," he added.
U.S. manufacturing contracted at the fastest pace in more than a decade in September, making the United States the latest country to suffer a manufacturing downturn amid a trade war between Washington and Beijing.
Many analysts, however, say the dollar's higher yield and the relative strength of the U.S. economy should make its setback temporary. Non-farm payrolls data due on Friday should give more insight into the health of the U.S. economy.
In morning trading, the dollar fell 0.3% against the yen to 107.39 yen, reflecting investor demand for safer assets after the manufacturing data heightened concerns about the health of the global economy.
The euro rose 0.1% against the dollar to $1.0944 but was above Tuesday's two-year low of $1.0879.
The dollar index, which measures the greenback's value against a basket of six major currencies, was little changed at 99.13 after reaching 99.667 on Tuesday, a 29-month peak, before the manufacturing data was released.
Michael Hewson, analyst at CMC Markets in London said weakness in U.S. manufacturing would have to spill over into services before it had much impact on monetary policy and the outlook for the dollar.
Elsewhere, the Australian dollar fell 0.2% to US$0.6696, its weakest since early 2009, as investors sold currencies linked to the outlook of the global economy. The Aussie fell to a fresh 10-year trough on Wednesday after the Reserve Bank of Australia cut rates to a record low on Tuesday.
The pound was down 0.1% at $1.2290 amid doubt over whether Prime Minister Boris Johnson's final Brexit offer to the European Union would be well-received by Brussels.