LONDON - The dollar firmed against the euro Monday, brushing off a weaker-than-expected US ISM manufacturing survey as market players focused instead on this week's US Federal Reserve interest rate decision and jobs data.
The euro was trading at 1.2854 dollars from 1.2871 late Friday in New York.
The dollar was at 105.10 yen against 104.62 Friday.
A key survey of US manufacturing published Monday showed activity slowing for the fifth straight month, with the ISM index dropping to 53.3 in April from 55.2 in March. That was its lowest level since July 2003 and well below analysts' forecasts for a much smaller dip to around 54.6.
"All in all, the worse-than-expected headline should be a marginal negative for the dollar, but given the focus on the more important FOMC (Federal Open Market Committee) rate announcement tomorrow and payrolls on Friday, the release is unlikely to dominate market sentiment for now," said CALYON currency strategist Kristjan Kasikov.
Although the ISM employment index's fall to its lowest level since October 2003 did not bode well for Friday's jobs data, Kasikov noted that manufacturing only makes up 10-15 percent of US non-farm employment.
The market, therefore, is likely to wait for the results of the non-manufacturing ISM survey on Wednesday before deciding on the risks to Friday's data.
Furthermore, the situation with US manufacturing remains much less worrying than that of the 12-nation eurozone.
A survey released Monday revealed that eurozone manufacturing contracted in April for the first time since August 2003, as the PMI index dropped to 49.2.
"If anything, the greater weakness seen in European PMI surveys this morning probably also mitigates the effect (of the weak ISM) on the dollar," Kasikov said.
Elsewhere, the yen outperformed, rising to near 12-week highs against the euro as speculation continued that China could make a move to free up the yuan -- which is currently pegged to the dollar -- during this week's "Golden Week" holiday in Asia.
"We maintain a positive yen view for the near term as many in the market are anticipating a move from China will come over the next seven days," said UBS analyst Daniel Katzive.
EU officials have expressed concern in recent months that inflexible exchange rate regimes in Asia have caused the euro to rise disproportionately against the dollar than Asian currencies, harming European exports.
Meanwhile, the pound was the other major mover, dropping below the 1.90-dollar mark for the first time in two weeks.
Analysts said jitters were beginning to set in ahead of Thursday's general election, which was expected to dominate trading for much of this week after Monday's public holiday in Britain.
The pound was likely to stage a relief rally if, as polls suggested, the Labour Party is reelected, but so far the outcome looks far from assured.
The euro was changing hands at 1.2854 dollars against 1.2871 late on Friday in New York, 135.09 yen (134.74), 0.6782 pounds (0.6741) and 1.5407 Swiss francs (1.5384).
The dollar stood at 105.10 yen (104.62) and 1.1987 Swiss francs (1.1951).
The pound was being traded at 1.8953 dollars (1.9057), 199.18 yen (199.72) and 2.2717 Swiss francs (2.2799).
05/02/2005 18:20 GMT