Friday's non-farm payrolls report showed U.S. job gains for February were much higher than expected, but wage inflation, a closely watched indicator by the Fed, remained subdued.
"Mixed messages on America's labor market last week largely offset and, importantly, failed to move the dial in favor of faster rate hikes from the Fed," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
"To excite the dollar and move the needle for the Fed to raise rates at a quicker pace, wage growth would need to move above 3 percent," he added.
Average hourly earnings edged up four cents, or 0.1 percent, to $26.75 in February, a slowdown from the 0.3 percent rise in January. That lowered the year-on-year increase in average hourly earnings to 2.6 percent from 2.8 percent in January.
The dollar also struggled amid uncertainty about U.S. trade protectionism, analysts said, after President Donald Trump imposed tariffs on steel and aluminum imports, except those from Mexico and Canada.
"We remain cautious on the outlook for the U.S. dollar and reiterate that tariff action – even on a limited scale – has not reflected positively on the dollar overall in the past," said Shaun Osborne, chief currency strategist at Scotiabank in Toronto.
Aside from the trade debate, key U.S. inflation numbers are potentially set to create more uncertainty for investors with the release on Tuesday of consumer price data and the producer price index due on Wednesday.
"Any markedly weaker-than-expected inflation readings this week could lead to a boost for stocks and further pressure on the struggling dollar," said James Chen, head of research at Forex.com in Bedminster, New Jersey.
In late trading, the dollar fell 0.4 percent against the yen to 106.37 yen
The yen, which tends to perform well when markets are anxious, gained as traders eyed a suspected cover-up of a cronyism scandal involving Japanese Prime Minister Shinzo Abe and his close ally, Finance Minister Taro Aso.
The euro, meanwhile, rose against the dollar to $1.2335
After a strong start to 2018, the euro remains below the three-year peak hit in February of $1.2556. A more-dovish-than-expected central bank meeting last week continued to weigh on the single currency.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Susan Thomas and Lisa Shumaker)
By Gertrude Chavez-Dreyfuss
