Dollar dawdles as market looks to G7, China

The dollar stayed in a holding pattern on Thursday as investors looked to next week's meeting of the Group of Seven economic powers for direction, particularly hints on whether China would revalue its currency soon. The dollar was knocked back against the yen on Wednesday after comments from a Chinese official reignited speculation that Beijing could move a step closer to revaluing the yuan. With the yuan pegged to the dollar, the yen has been traded as a proxy for the Chinese currency and has had a rough ride recently, swayed by seesawing speculation about the timing of a revaluation.
"Talk of Chinese revaluation is becoming a bit like the boy who cried wolf," said a trader at a British bank.
"I think the market will not respond much to speculation any more. The focus in on next week." The dollar fetched around 103.30 yen, up from the late US level around 103.05 but still about a yen below the two-week high of 104.35 hit on Tuesday, when expectations were lower for a yuan revaluation in the near term.
The euro was little changed at around $1.3085. It rose to a one-week high of $1.3109 on Wednesday on a stronger than expected reading for Germany's Ifo business climate index.
A senior Chinese official said on Wednesday that China would discuss the yuan - currently pegged at 8.28 to the dollar - with policymakers at the G7 meeting on February 4-5 in London.
Few market players expect China to announce a policy change there, but they are looking for any hints of Beijing's thinking on how it will go about moving to a flexible foreign exchange scheme.
"The question is when China will take action," said Fumihiko Kawano, forex manager at Nomura Securities.
"Will it be in the first half of this year, as some in the market expect, or much later than that? They probably won't say it clearly, but the market is looking for clues."
Other upcoming events also made traders reluctant to move.
Market players were getting nervous about Sunday's parliamentary election in Iraq, a cornerstone of US policy.
Dealers said that an escalation of violence could weigh on the dollar, noting the news on Wednesday that 31 US troops had died in a US helicopter crash in Iraq had dented the currency.
Also on the market's radar is next week's meeting of the Federal Reserve's policy board, which is expected to raise rates by 25 basis points.