Forex - Dollar weakens as U.S. factory data disappoints

The dollar fell on Monday after a widely-watched factory gauge in the U.S. contracted for the first time in six months in May.

Softer-than-expected indicators in the U.S. tend to weaken the dollar by stoking expectations that the Federal Reserve won't rush to scale back monetary stimulus programs.

Stimulus measures such as the Fed's monthly USD85 billion bond-buying program weaken the greenback to spur recovery.

In U.S. trading on Monday, EUR/USD was up 0.60% at 1.3074.

The Institute for Supply Management said earlier its U.S. manufacturing purchasing managers’ index fell to 49.0 in May from 50.7 in April. 

Analysts were expecting an unchanged reading.

On the index, a reading above 50.0 indicates industry expansion, below indicates contraction.

Federal Reserve Chairman Ben Bernanke has said monetary authorities will pay close attention to economic data when deciding plans for monetary stimulus measures.

Meanwhile in Europe, better-than-expected PMI data strengthened the euro and sent the dollar falling.

The eurozone's manufacturing PMI improved to 48.3 from 47.8 in April indicating that the slump in the manufacturing sector is easing, according to London-based Markit Economics.

Germany’s manufacturing PMI was revised up to 49.4 in May, beating market calls for a 49.0 reading.

The greenback, meanwhile, was down against the pound, with GBP/USDtrading up 0.80% at 1.5317.

The dollar was down against the yen, with USD/JPY down 0.93% at 99.49, and down against the Swiss franc, with USD/CHF trading down 0.91% at 0.9471.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.88% at 1.0277, AUD/USD up 1.90% at 0.9758 and NZD/USD trading up 1.73% at 0.8084.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.74% at 82.70.

On Tuesday, the U.S. will unveil data on the trade balance, the difference in value between imports and exports.