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The dollar recovered on Tuesday from the previous day's losses but trading was subdued as market participants braced for capital flows data which will show how the United States is funding its current account deficit. With the dollar at a crossroads after hitting three-month highs against both the euro and the yen, the market is focusing on fundamental and structural issues for clues to its future direction.
This could come in the form of monthly data from the Treasury International Capital System due at 1400 GMT and congressional testimony by Federal Reserve Chairman Alan Greenspan on Wednesday and Thursday.
"The market is now at a turning point, trying to shift its focus from the structural problem of the US deficits to such cyclical issues as interest rate and growth differentials," said Shogo Nagaya, forex manager at Nomura Trust and Banking.
"The dollar is in a tug-of-war as views are mixed as to which factor will prevail," he said.
Some traders said short-term players looking to trigger stop-loss moves at 136.40-136.50 yen to the euro and 105.30-105.40 yen to the dollar were curbing the dollar's rise.
Other market participants said the dollar's rise to the day's high around 105.35 yen may have been driven by worries over Asian currencies after three bomb blasts hit the Philippines on Monday and jitters over North Korea.
A Jiji news agency report on Tuesday citing a South Korean paper as saying North Korea has developed a new missile with higher accuracy and longer range may have been a factor in dollar buying, said Kaoru Kondo, chief forex analyst at Fisco.
The dollar was at 105.07 yen essentially flat from late New York levels.
The euro was trading at $1.2967 down slightly from $1.2977 per euro in New York.
Other currencies such as the Canadian dollar and sterling were gaining support from expectations of higher interest rates.

Copyright Reuters, 2005

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