Investing.com - The dollar was lower against the euro and the yen on Tuesday as data pointing to a deepening economic slowdown in China spurred risk aversion, sending Asian equities lower.
EUR/USD was up 0.5% to 1.1268, extending its pullback from last week’s lows of 1.1155.
USD/JPY was down 0.54% to 120.56, moving further back from Friday’s high of 121.73.
Data on Tuesday showed that manufacturing activity in China contracted at its fastest rate in three years in August, while service sector activity also slowed.
China's official manufacturing purchasing managers' index fell to 49.7 in August from 50.0 in July. It was the lowest reading since August 2012, and fell below the 50-point level separating growth from contraction.
The weak data fueled fears over a worsening slowdown in the world’s second-largest economy.
Shares in China and Japan were sharply lower and the worsening outlook for equities underpinned demand for the low yielding euro and yen.
Investors often use low-yielding currencies to fund positions in higher-yielding currencies and equities, known as carry trades.
The dollar was also pressured lower amid ongoing uncertainty over whether the recent turmoil in global financial markets will prompt the Federal Reserve to delay hiking short-term interest rates.
Investors were looking ahead to Friday’s U.S. jobs report for August, which could help to provide clarity on the likelihood of a near-term interest rate hike.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.53% to 95.44, holding above the eight-month trough of 92.52 set last Monday.