The dollar declined from 12 year high against the euro since 2003 as economic reports raise concerns over the U.S. recovery before Federal Reserve meeting this week.
After posting four weeks of gains, the dollar had been climbing amid speculation the Fed is moving closer to raising interest rates as the European Central Bank starts a stimulus program that's set to inject 1.1 trillion euros ($ 1.2 trillion) into the financial system through September 2016.
Fed policy makers begin a two-day meeting in Washington on Tuesday.
''One of the reasons why we're also seeing some downward pressure on the dollar is that economic data has been coming in on the softer side," said Sireen Harajli, a strategist at Mizuho Bank Ltd. in New York.
"That's making markets doubt whether the Fed's going to be ready to start hiking rates sooner rather than later."
The dollar weakened 0.8 percent to $ 1.0581 per euro as of 9:48 a.m. New York time after earlier reaching $ 1.0458, the strongest level since January 2003. The U.S. currency lost 0.2 percent to 121.13 yen.
The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major currencies, fell 0.6 percent to 1,215.45. It reached 1,222.12 on Friday, the highest level based on closing prices going back to 2004.
The dollar slipped versus most of its 16 major counterparts Monday as a report showed industrial production grew less than forecast in February and an index tracking manufacturing in New York state fell a second straight month.
Citigroup Inc.'s U.S. economic surprise index, which evaluates data relative to market expectations, has fallen to its lowest since July 2012.
The dollar's broad gains this month have left it vulnerable to a reversal, said Kyosuke Suzuki, head of the foreign-exchange and money-market sales department at Societe Generale SA in Tokyo.
"The accumulated long-dollar positions may face a correction if stock markets undergo adjustments after the Fed meeting," Suzuki said.
Hedge funds and other large speculators increased wagers on the U.S. currency's strength versus eight major peers to the most in a month last week, according to Commodity Futures Trading Commission data compiled by Bloomberg.
Even with Monday's declines, the dollar's heading for its biggest ever quarterly gain versus the euro after the currency bloc's central bank began buying bonds to stave off deflation.
The dollar has rallied 9.1 percent in the past three months, making it the top performer among 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The yen gained 4.4 percent, while the euro dropped 9.4 percent, the group's worst performer.
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