- The dollar backed off more than two-week highs against the yen on Monday after Federal Reserve Chair Janet Yellen struck a dovish tone on the economic outlook, while disappointing U.S. manufacturing data also weighed.

USD/JPY was last up 0.26% to 103.09, off session highs of 103.44.

The dollar trimmed gains against the yen after Ms. Yellen said that “considerable slack” still remained in the labor market and reiterated that the Fed’s commitment to economic stimulus will still be needed for some time. The remarks came during the Development conference in Chicago.

Separately, a report showed that manufacturing activity in the Chicago region expanded at a slower rate than forecast in March, as new orders fell.

The Chicago purchasing managers’ index fell 55.9 from 59.8 in February. Analysts had expected the index to tick down to 59.0.

EUR/USD was up 0.23% to 1.3783, after falling to session lows of 1.3724 earlier.

The single currency briefly touched session lows after preliminary data showed that the annual rate of inflation in the euro zone fell to the lowest level since November 2009 in March.

Consumer inflation in the euro area slowed to 0.5% this month from 0.7% in February, undershooting expectations for a reading of 0.6%. The European Central Bank targets an inflation rate of just under 2%.

The report showed that core inflation rose 0.8% in March, in line with forecasts, but down from 1.0% in February.

The weak data fuelled expectations that the European Central Bank could take steps to bolster the fragile recovery in the euro area at its upcoming policy meeting on Thursday. Last month the central bank left rates on hold, but indicated that it was prepared to take decisive action if the inflation outlook continued to deteriorate.

The euro fell to one-month lows against the dollar last week after ECB officials indicated that they are considering fresh policy options to stave off the risk of deflation in the region.

However some investors expect the ECB to leave monetary policy on hold on Thursday, after Bundesbank head Jens Weidmann said Saturday that the euro zone is not in a deflationary cycle, and that the slowdown was due in large part to temporary factors, such as falls in food and energy prices.

The pound rose to more than two-week highs against the dollar, with GBP/USD up 0.21% to 1.6673, while USD/CHF was down 0.38% to 0.8833.

NZD/USD was up 0.22% to 0.8673, holding just below the two-and-a-half year peaks of 0.8696 struck on Friday. The Australian dollar was trading close to four month highs, with AUD/USD climbing 0.25% to 0.9270.

Meanwhile, USD/CAD was down 0.19% to 1.1036 after official data on Monday showed that Canada’s economy expanded 0.5% in January, ahead of expectations for growth of 0.4%.

On a year-over-year basis, Canada’s economy expanded 2.5% in January, following growth of 2.4% in the preceding month.

The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, slid 0.16% to 80.22.

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