- The greenback dropped against most major currencies on Monday after a widely-watched gauge of U.S. factory activity disappointed investors and stoked expectations for the Federal Reserve to wind down stimulus programs on a very gradual basis.

In U.S. trading on Friday, EUR/USD was up 0.21% at 1.3517.

The dollar softened after the Institute for Supply Management said its manufacturing index fell to a seven-month low in January, as new orders slumped.

The ISM’s manufacturing purchasing managers’ index came in at 51.3 in January, down from 57.0 in December.

Analysts were expecting the index to inch down to 56.4 in January.

The report added new order growth fell at its fastest rate in 33 years, with the new orders index dropping to 51.2 from 64.4 in December. The employment index fell from 55.8 in December to 52.3, the weakest since June.

Also on Monday, U.K.-based Markit reported that its U.S. manufacturing PMI came in at a three-month low of 53.7 for January, missing expectations for a 53.8 reading.

The soft numbers reminded investors that the Federal Reserve will trim its USD65 billion monthly bond-buying program on a gradual basis, and won''t tighten policy in the foreseeable future.

Stimulus tools tend to weaken the dollar by suppressing interest rates to spur recovery.

Meanwhile across the Atlantic, Markit reported that the euro zone’s January manufacturing PMI rose to a 32-month high of 54.0 in January, up from 52.7 in December and higher than the preliminary estimate of 53.9.

However, the euro refused to surge against the greenback due to last week''s soft inflation data that fueled fears the European Central Bank may avoid tightening policy to stave off the risk of deflation.

The euro area''s flash consumer price index rose 0.7% on year in January, according Eurostat, missing market calls for a 0.9% reading, which softened the single currency.

Core inflation, stripped of volatile food, energy, alcohol and tobacco items, rose 0.8%, in line with expectations.

The dollar was down against the yen, with USD/JPY down 0.82% at 101.18, and down against the Swiss franc, with USD/CHF down 0.45% at 0.9024.

The yen continued to see safe-haven demand due to ongoing concerns that emerging markets will remain volatile due to a possible slowdown in China and less stimulus from the Federal Reserve sending funds trickling into non-U.S. stock markets.

The greenback was up against the pound, with GBP/USD down 0.86% at 1.6295.

Markit Economics said the U.K. manufacturing purchasing managers’ index fell to 56.7 in January, down from 57.2 in December and below estimates for a reading of 57.0.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.25% at 1.1099, AUD/USD up 0.14% at 0.8764 and NZD/USD up 0.09% at 0.8096.

The Australian dollar rose ahead of the Reserve Bank of Australia’s rate review on Tuesday, amid expectations that it would keep interest rates on hold.

The RBA was expected to shift its stance away from lower rates after recent economic data indicated a pickup in consumer spending and business conditions and continued strengthening in the housing market.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.17% at 81.22.

On Tuesday, the U.S. is to produce data on factory orders, a leading indicator of production.

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