The Japanese yen gained against a basket of currencies as investors speculated that the global economic recovery will be sluggish, encouraging demand for safe-haven assets. Earlier in the day, the dollar briefly strengthened across the board except versus the yen before erasing those gains after the release of better-than-expected U.S. ISM non-manufacturing data. In addition, although France and Russia on Sunday urged a debate about the world’s reserve currency, Chinese Vice Foreign Minister He Yafei said the dollar would stay as the world’s dominant currency for 'many years to come' and that talk of creating a super-sovereign alternative was confined to academic circles. However, on Monday Li Ruogu, chairman of the Export-Import Bank of China said that reforming the current SDR to make it into a real settlement currency was possible. He also added that countries should look to displace the U.S. currency even if it will take a long time.

The single currency hit an intra-day high of 1.3999 against the dollar in late Asian trade, however, it slipped from there to 1.3876 as investors were concerned about the global economic outlook and took shelter in currencies perceived to be relatively safer under negative growth situation. In New York morning, the U.S. posted a better-than-expected ISM non-manufacturing index (47.0 versus consensus forecast of 46.0), showing the U.S. service sector shrank at a slower pace in June. Euro was able to recover its intra-day losses against the greenback. Furthermore, an International Monetary Fund official said in a speech released on Monday that the economic outlook for the U.S. and Japan was slightly better than a few months ago. The speech also stated that they saw signs indicating the economic downturn bottoming out in some Asian countries including China. DJI pared all losses and ended up 44 points.

In early European morning trade, the British pound fell against the dollar after the Sunday Times said that Bank of England may increase its program of asset purchases by 25 billion pounds amid signs that the economic recovery is petering out. Sterling tumbled from 1.6350 to as low as 1.6095 against the dollar and 10-year gilt yields fell the most in more than two weeks. However, the U.K. currency found buying interest on dips and erased almost all the intra-day losses versus the dollar.

The Japanese yen strengthened against high-yielding currencies on Monday early trade on risk aversion. Euro, aussie and sterling rebounded strongly against the yen from 131.73 to 133.33, 74.80 to 76.05 and 153.08 to 155.15 respectively in late New York afternoon.

Data to be released on Tuesday includes Australia rate decision, U.K. house price, industrial production and manufacturing production, German factory orders and Canada building permits.