The dollar took a breather on Thursday as the market looked to upcoming US trade deficit data for clues about whether the currency would build on its recent rally. The dollar had risen to a three-month high against the euro and a two-month peak versus the yen in recent sessions as worries eased about the massive US deficits, though the trade figures could refuel such concerns, dealers said. "We are stuck in narrow trading ranges because nobody wants to take positions before the data," said a dealer at a Japanese bank.
The market was seen divided on whether a bigger deficit would spur dollar selling.
"Given the recent trend of waning pessimism over the US deficit problem, the market could take a larger trade deficit in its stride," the dealer said.
US trade figures for December, due at 1330 GMT, are expected to show a deficit of $57 billion. That would be narrower than the $60.30 billion recorded in November, which is also expected to be revised downward.
The dollar was little changed at around 105.65 yen. Trading was quiet in Tokyo as much of Asia was off for the Lunar New Year and ahead of a holiday in Japan on Friday.
The yen dipped only slightly after North Korea said it was suspending participation in six-party talks aimed at ending its nuclear ambitions and that it has built nuclear weapons for self-defence.
The US currency was also static against the euro at around $1.2815. Euro buying in the lower $1.27 region all week has prevented the dollar from building on its three-month high around $1.2730.
The dollar's upside was capped against the Japanese currency as levels just below 106 yen provided good selling opportunities for Japanese exporters, said Kikuko Takeda, a currency analyst at Bank of Tokyo-Mitsubishi.
"Foreign investors are also continuing to buy Japanese stocks, keeping pressure on the yen to appreciate," she said.
Traders said that 106.20 yen - which would mark a three-month high for the dollar - would also likely provide stiff resistance.
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