The dollar posted modest gains on Monday in tight ranges ahead of a Federal Reserve monetary policy meeting starting Tuesday and a gathering of Group of Seven finance ministers and central bankers late in the week. US economic data gave the dollar some support, with personal income and the Chicago purchasing managers business index both rising faster than anticipated. But with potentially bigger events for the market coming up later in the week, the currency's upside was pretty limited.
"It's a very quiet day, with not a lot of volume for the last day of the month, and we've had very tight ranges," said Greg Anderson, senior currency strategist at ABN Amro in Chicago, adding that event risk may have spurred trading last week ahead of the Fed meeting, the G7 and upcoming jobs data.
The Federal Open Market Committee, which sets US monetary policy, is almost certain to raise official interest rates by a quarter percentage point on Wednesday, so investors will look to the accompanying statement for clues on future rate moves.
With US employment data sandwiched between the FOMC and the G7 meeting, which runs from Friday to Saturday, traders are happy to sit tight to see how the week pans out.
"Once we get some resolution to all of this, it might give a clearer direction on where the dollar's going in the near term," said Bob Lynch, senior currency strategist at BNP Paribas in New York.
Late in New York trading, the euro was a touch softer at $1.3033 and sterling was almost 0.3 percent down at $1.8830.
The dollar was around 0.3 percent stronger at 103.66 yen and 1.1889 Swiss francs.
The euro's downside against the dollar was limited by its rise against the yen to 135.12 yen.
The US rate decision on Wednesday, US jobs data on Friday and the weekend's G7 meeting combine to make the week one of the most important in the currency market for months.
If the Fed raises rates to 2.5 percent as expected, it would lift returns on US deposits further above those in the euro zone, where rates are expected to remain at 2.0 percent for most of the year.
Higher interest rates could bolster the appeal of dollar deposits and have helped offset the negative impact on the US currency from the country's huge trade and budget deficits.
US President George W. Bush's State of the Union speech on Wednesday will also be scrutinised for any proposals to curb the country's growing budget deficit.
Earlier, a government report showed that US personal income in December rose by a record 3.7 percent thanks to a big dividend payment from Microsoft Corp.
The Chicago Purchasing Managers Index for January came in at 62.4, up from December's revised 61.9. Economists were expecting 60.0. A reading above 50 shows expansion.
The dollar reacted little to news that growth in US gross domestic product in the fourth quarter of 2004 may have been underestimated due to an error in Canada's trade data.
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