The dollar edged up against the euro while falls on equity markets and concerns over the large uncertainties surrounding the global economic outlook encouraged investors to buy currencies perceived as safe.
European equities fell by 0.5 percent, tracking falls in Asian stock markets overnight, which lent support to the dollar.
Shares were off lows, however, having earlier traded over 1 percent lower. This helped take some of the shine off the U.S. currency, while concerns over the weakness of the Japanese economy also took the yen — which typically gains too when shares fall — off an earlier two-month high versus the dollar.
A nascent recovery in equities and riskier assets recently came to a halt as investors questioned just how sustainable any recovery in the global economy will be.
"There has been a return of scepticism on stock markets and the market is reacting in terms of a rebound in the dollar and the yen," Stockholm-based SEB currency strategist Johan Javeus said.
The world economy is in "a very uncertain mode" at the moment, wavering between the hope and optimism that the global economy may be over the worst and the knowledge that "bear market rallies in a recession are the rule not the exception".
"Right now it is difficult for the market to choose which leg to stand on," he said.
Data on Friday showing a bigger-than-expected contraction in the euro zone economy highlighted that although forward-looking surveys and indicators may have shown improvement, this has yet to be reflected in the more important hard economic data.
At 0815 GMT, the euro fell 0.3 percent against the dollar as the U.S. currency gained 0.1 percent against a basket of currencies to 83.059.
Against the yen, the euro dipped 0.1 percent to 128.32 yen, off an earlier low of 126.99 yen on EBS, its lowest since April 29.
The dollar edged up 0.2 percent against the yen to 95.37, rebounding from a two-month low of 94.55 yen struck earlier on trading platform EBS.
The Reuters Tankan survey overnight showed confidence among Japanese manufacturers edged up from record low levels, providing some hope for that Japan's battered economy may have reached a trough in the first quarter..
There was also some relief as Moody's ratings agency said on Monday it was raising Japan's yen-denominated Japanese government bonds by a notch to Aa2 from Aa3. But it downgraded its foreign currency bond rating to Aa2 from AAA, thus unifying the two ratings.
Analysts said there are still major concerns about the severity of the weakness in Japan's economy, however, which could cap yen gains, particularly with Japanese industrial output and gross domestic product data due later in the week.
"Japanese data could move into the market focus this week already: Industrial production and orders tomorrow, Q1 GDP on Wednesday. Weakness at this front should weigh on the yen and should help to stabilise dollar/yen," Commerzbank analysts said in a note to clients.
Elsewhere, sterling gained 0.4 percent against the dollar to $1.5222, while the euro fell 0.6 percent to 88.36 pence after Oman's central bank said it was buying small amounts of sterling and euros to diversify its reserves.
It said, however, that the dollar will remain its main reserve currency. See.
The euro was steady against the Swiss franc at 1.5130 francs , not far from a one-week high hit on Friday after traders said the Bank of International Settlements was buying the euro, though the Swiss National Bank declined to comment.
