Forex - Dollar edges lower on labor market uncertainty

The dollar traded lower against most major currencies on Monday after a component in a manufacturing gauge hinted at a possible softening in job demand, clouding prospects as to when the Federal Reserve will taper its USD85 billion monthly bond-buying program that weakens the greenback to spur recovery.

The Bureau of Labor Statistics on Friday will release its June jobs report after a the U.S. Independence Day on Thursday, and uncertainty as to the health of the labor market pushed the dollar lower.

In U.S. trading on Monday, EUR/USD was up 0.42% at 1.3066 on improving factory data.

U.K.-based Markit's final euro zone purchasing managers' index hit a 16-month high of 48.8 in June, beating market calls for a 48.7 reading.

Spain’s manufacturing PMI rose to 50.0 in June, the highest level in two years, up from 48.1 in May and above expectations for a 48.5 reading.

France’s manufacturing PMI came in at 48.4 compared to market calls for 48.3, but Germany’s manufacturing PMI came in at 48.6, missing expectations for a 48.7 reading, which gave the euro added support.

Elsewhere, official data revealed that the euro zone's unemployment rate hit 12.1% in May from 12.0% in April, slightly lower than expectations for a 12.3% reading.

The euro zone's consumer price index rose to 1.6% in June from 1.4% in May, in line with expectations.

Across the Atlantic, manufacturing output is on the rise in the U.S. as well.

The Institute for Supply Management said its manufacturing purchasing managers’ index rose to 50.9 from 49.0 in May, above expectations for a reading of 50.5.

However, the report added that the employment index declined to 48.7 from 50.1 in May, falling below the 50 level that separates contraction from growth for the first time since September 2009.

The numbers frayed nerves somewhat ahead of the release of Friday’s U.S. nonfarm payrolls data, which could provide the market with a weather vane as to when the Federal Reserve begins to taper its dollar-weakening stimulus measures.

The greenback was down against the pound, with GBP/USD trading up 0.08% at 1.5219.

The dollar was up against the yen, with USD/JPY up 0.48% at 99.65, and up against the Swiss franc, with USD/CHF trading up 0.06% at 0.9454.

Japan's Tankan index of sentiment among large manufacturers jumped up to 4 during the second quarter from -8 in the first quarter, outpacing market calls for a reading of 3.

The news sent Japanese stocks gaining earlier that came at the expense of the yen.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.22% at 1.0496, AUD/USD up 1.03% at 0.9236 and NZD/USD trading up 0.92% at 0.7814.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.26% at 83.20.

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