The dollar was slightly higher against the euro, but weaker against the yen on Wednesday as dealers took advantage of a quiet day on the US economic data front to consolidate positions.
Investors last week sharply pared back their bets on how much further the Federal Reserve will raise interest rates this year, pushing the dollar to multi-week lows.
This week, however, traders shifted back toward the view that the US central bank will raise rates to 5 percent by May and possibly higher after that following February's strong core producer price data on Tuesday and upbeat comments on the economy from Fed Chairman Ben Bernanke on Monday.
But with no fresh impetus on Wednesday, that rebound ran out of steam, allowing flows and stop-loss activity to push the dollar around in narrow ranges, with many looking to next week's Fed meeting for direction.
"The market has been burned on both sides, so people want to see what the Fed has to say and unless it's a concrete statement, everything will continue to be data-dependent," said Brian Dolan, director of research with GAIN Capital in Bedminster, New Jersey. By late afternoon, the dollar was trading down 0.3 percent on the day at 116.95 yen, having edged up as high as 117.40 yen earlier in the global session.
The fall in dollar/yen dragged down euro/yen 0.4 percent on the day to 141.25 yen.
Meanwhile, the euro was trading at $1.2075, down 0.1 percent on the day, while the dollar was up 0.3 percent against the Swiss franc at 1.3053 francs. Sterling was unchanged at $1.7475.
After a brief bit of consolidation on Wednesday against the yen, Australian dollar and New Zealand dollar, the US dollar was poised to continue to retrace last week's losses for the rest of the week.
"There are stop loss orders (in euro/dollar) building beneath $1.2060 and will likely be the catalyst for further euro/yen selling," said Matt Kassel, currency strategist with IDEAglobal.
"I don't see any reasons to sell the dollar this week, and the entry level to sell the dollar in general looks to be sometime in the early or middle part of next week," he added.
Market attention is shifting toward next week's Fed policy meeting that ends on Tuesday. Amid perceptions that the Fed is closer to the end of its rate-raising campaign after 14 consecutive increases since June 2004 to 4.5 percent, the dollar is very sensitive to changing sentiment on how high US short-term rates will climb.
This week rate futures have signified increased chances the Fed will lift borrowing costs to 5 percent, giving the dollar some breathing room as both the European Central Bank and the Bank of Japan look to tighten credit conditions as well.
"This year may be the first since 2000 in which the United States, Japan and the euro area all grow at or above their potential," Citigroup economists said in a note.
"The US economy appears poised to slow modestly, but upside inflation risks probably will prompt the Fed to raise rates two more times to 5 percent," they said.
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