The euro fell in subdued trade on Monday after hitting a six-week high on weak U.S. jobs data late last week, while the dollar steadied against a currency basket.
Traders were wary of chasing the dollar lower with U.S. markets closed on Monday for Independence Day.
Concern about the U.S. economy mounted after Friday's jobs data showed weak private hiring, raising fears that the global economy could be heading for a double-dip recession and dragging the dollar to a near two-month low against a currency basket.
The market last week was clearly concerned about a U.S. slowdown... It was the first week in a long time we have seen the dollar react like that, Chris Turner, head of foreign exchange strategy at ING, said.
There is a creeping fear that the strong dollar environment will start to break. That has not happened yet and it is likely to be steady this week.
By 1408 GMT, the euro EUR= eased 0.3 percent to $1.2522, with support seen close to Friday's low around $1.2480. The euro fell 0.4 percent versus the yen EURJPY=R on corporate selling.
Options with a strike price of $1.2500 expiring on Tuesday may also cap the downside, traders said.
Last week, the euro gained 1.5 percent against the dollar after hitting a four-year low around $1.1875 in June.
The euro briefly rose 10 pips to around $1.2545 EUR= after the euro zone Sentix investors sentiment index improved to -1.3 in July from -4.1 the previous month, beating expectations for a fall to -5.0 [nBAF004155].
A final reading of the euro zone Services Purchasing Managers' Index, which suggested private sector expansion may have peaked in the second quarter, had little impact on markets looking to a meeting of the European Central Bank on Thursday.
No ECB rate change is expected and debt fears have eased after successful issuance by peripherals last week.
It's very quiet on the U.S. front this week and the ECB won't be a big trigger, said Peter Frank, currency strategist at Societe Generale.
There's been such a big washout of previous positions it is unclear if it's an upside or downside trend for euro/dollar. Everyone is sidelined at the moment and looking for clarity.
Markets were looking to a statement from Australia's central bank at its July 6 policy review. Economists expect no rate change but will look for indications of global risk sentiment.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.25 percent from late U.S. trade on Friday at 84.641 .DXY. On Friday, it fell to 84.132, its lowest since mid-May.
Friday's U.S. monthly jobs report showed employment fell for the first time this year. The data followed reports suggesting U.S. spending, housing and factory activity was moderating.
One-month implied volatility eased to 11.2/11.8 JPY1MO= from around 13 percent last week when the dollar slid to a 7-month low of 86.96 yen.
The Swiss franc held off recent record highs against the euro EURCHF= after the head of the Swiss National Bank said it was following currency movements closely.
Markets will watch Swiss consumer price data for June on Tuesday to see if deflation pressures could return, and Frank said any surprises could require further SNB comment. The euro fell 0.1 percent versus the Swiss franc to 1.3333 francs. (Graphics by Scott Barber, additional reporting by Tamawa Desai; editing by Nigel Stephenson)