The euro stayed under broad pressure on Monday, hurt by concerns over the euro zone economy which have seen short positions in the single currency extended.
The Australian dollar was dented by political uncertainty after an inconclusive general election.
The latest Commodity Futures Trading Commission data showed an extension in euro short positions in the week ended August 17 as focus shifted away from specific concerns about the U.S. economy and back on to the euro zone.
There's a rotation going on and focus has shifted to conditions in the euro zone again. The market is trying to capitalize on it, said Paul Mackel, director of currency strategy at HSBC.
Purchasing manager surveys were under scrutiny, with Germany's manufacturing sector expanding at its slowest pace in six months, missing the consensus forecast of 60.5.
At 0725 GMT (3:25 a.m. EDT), the euro was trading down 0.1 percent on the day at $1.2693, not far from five week lows of $1.2664 versus the dollar hit on Friday when European Central Bank Governing council member Axel Weber said the ECB should extend its loose monetary stance, stoking worries about the euro zone economy.
Technical analysts said the next support was the 55-day moving average at $1.2679, followed by $1.2605, a 50 percent retracement of its rise from a four-year low of $1.1876 marked in June to its August peak of $1.3334.
The euro slipped 0.4 percent to 108.35 yen, near a seven-week low of 108.25 yen hit on EBS on Friday.
The dollar fell 0.2 percent to 85.35 yen, within striking distance of 84.72 yen hit earlier this month, its lowest since July 1995.
The greenback has been soft against the Japanese currency, partly due to a sharp fall in U.S. Treasury yields on the back of persistent fears the U.S. recovery is losing its momentum.
The dollar/yen rate has a high correlation with U.S. and Japanese government bond yield spreads, which are narrowing.
Japanese Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa talked about the yen in a phone conversation on Monday and agreed to work closely, but offered few clues on whether further monetary easing was possible.
The yen is expected to stay on a gradual rising trend and there is the possibility it will strengthen beyond 84 yen (per dollar) as the market is looking at Japanese authorities being too tame on economic policy, said Ayako Sera, market strategist at Sumitomo Trust & Banking.
The Australian dollar dropped after neither of the major parties in Australia won an overall majority in Saturday's election to form a government, leaving the country facing its first hung parliament in 70 years.
The Aussie hit a one-month low of $0.8833 in early Pacific trade in a knee-jerk reaction to the election. But it trimmed losses thanks to bargain hunting, rising to $0.8910, down 0.3 percent on the day.
The currency received some help after Britain's Sunday Times reported that beverage giant SABMiller (SAB.L) (SABJ.J) was considering buying the beer operation of Australian brewer Foster's Group (FGL.AX) for about $10.9 billion.
(Additional reporting by Rika Otsuka; Editing by Nigel Stephenson)