NEW YORK (Reuters) - The euro had its biggest drop against the U.S. dollar in three weeks on Wednesday as soft economic data and comment from European policy-makers indicated the weaker U.S. currency is hurting euro zone economic growth.
A manufacturing activity indicator, the RBC/NTC Eurozone Purchasing Managers Index, dropped to an almost three-year low in April. Another report showed German manufacturing activity also declined.
Demand for the European currency slid further after comments by a member of European Central Bank Governing Council, Christian Noyer, dampened speculation of further interest rate increases by the bank. In addition, Jean-Claude Juncker, the chairman of the euro zone finance ministers, said the euro's exchange rate is now excessively volatile.
"The euro zone is not insulated and economic data is beginning to show that," said Omer Esiner, a market strategist at Ruesch International in Washington, D.C. "The market may have gotten ahead of itself betting on a rate hike by the ECB. The euro now is overstretched and policy-makers are making it very clear they are not satisfied with it."
In late trading in New York, the euro was down 0.6 percent at $1.5893, after falling as low as $1.5862 earlier. The European currency traded at a record $1.6019 on Tuesday, according to Reuters Dealing 3000, the highest level since its inception in 1999.
Against the yen, the dollar was up 0.4 percent at 103.45 yen.
Most of the moves in the dollar came early in the New York session and, without any new U.S. data or news, the dollar's direction was set for the remainder of the day.
"There was no U.S. data, stocks are sideways, oil is sideways and Treasuries are sideways," said Ron Simpson, director of FX research at Action Economics in Tampa, Florida. "So the dollar is sideways."
The euro hovered in reach of a record high versus sterling after a slide in British mortgage approvals to a record low in March underlined serious weakness in the housing market. It last traded at 80.23 pence.
The data suggested the Bank of England may continue cutting rates, and wiped out initial sterling gains made on BoE minutes showing there was dissent within the central bank over its decision to cut interest rates by 25 basis points to 5.0 percent this month.
The ECB is expected to keep its key interest rate on hold at 4.0 percent, while the U.S. Federal Reserve is expected to lower its benchmark from 2.25 percent later this month.
The euro's record high on Tuesday was boosted by hawkish remarks from ECB officials, including Noyer's comments in an interview with French radio network RTL that the central bank will do what is needed to being inflation back to target.
But Noyer later said markets had misinterpreted his remarks as a hint on the direction in which interest rates might move, The Wall Street Journal reported in its online edition.
"I would never engage in a discussion about the future path of interest rates, simply because nobody knows. It would be dangerous to make predictions in either direction," the WSJ quoted Noyer as saying.
"We're a considerable way away from an ECB rate rise, I can't see it happening, to be honest," said David Pais, currency strategist at Citigroup in London.
The euro is up more than 9 percent this year; its breach of $1.60 prompted Juncker to say the exchange rate is excessively volatile.
"The G7 in its recent statement was very clear -- we did express the view that the excessive volatility is undesirable for economic growth and we didn't like sharp moves as far as the exchange rate is concerned," Juncker said on Wednesday.
(Additional reporting by Naomi Tajitsu in London)
(Reporting by Nick Olivari and Vivianne Rodrigues)