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The dollar languished at its lowest since April against the euro and sterling on Tuesday as signs of a softening U.S. economy boosted the case for earlier Federal Reserve interest rate cuts.

The U.S. currency wallowed near a two-week trough to the yen after data showed a second straight month of slowdown in manufacturing activity and an unexpected decline in construction spending.

Following the data, fed funds futures increased the chances of a rate cut in September to around 59.1%, according to LSEG's rate probability app.

That compares with odds of around 55% on Friday, when data showed a stabilisation in consumer price pressures, helping knock the dollar to its first monthly loss of the year in May. Wagers were slightly below 50% earlier last week.

A key test comes in the form of monthly U.S. payroll figures on Friday.

"The persistent high-interest-rate policy of the Federal Reserve is under scrutiny as it continues to weigh on the U.S. economy," James Kniveton, senior corporate FX dealer at Convera, wrote in a client note. "Analysts are closely monitoring the upcoming job data for indications of economic strain."

Currently, a first quarter-point rate increase is fully priced by the Fed's November meeting, with a total of 41 basis points of tightening seen by year-end.

November "is poised to be a tumultuous period for the U.S. dollar due to the confluence of a potentially decisive Federal Reserve meeting and the U.S. elections," Kniveton said.

The Fed's next policy meeting concludes on June 12, when consumer price data is also due. Traders and analysts don't see any risk of a policy change at that gathering, but officials will update their economic and interest-rate projections.

The dollar index, which measures the currency against the euro, sterling, yen and three other major peers, eased 0.05% to 103.99, its lowest level since April 9.

The euro added 0.11% to $1.09155, a level last seen on March 21.

The European Central Bank has telegraphed that policy makers will cut rates at their meeting on Thursday, but a pick-up in inflation in data last week may give officials pause when considering when next to ease.

Sterling rose 0.05% to $1.2814, its strongest since March 14.

However, the dollar added 0.14% to 156.255 yen, clawing its way back from the overnight low of 155.95, its first time below 156 since May 21.

The Bank of England and Bank of Japan also hold potentially pivotal policy meetings later this month.

Elsewhere, the New Zealand dollar rose to $0.6194 for the first time since March 8. The Aussie traded flat at $0.66895, holding close to the two-week high of $0.6695 from overnight.