The dollar steadied on Tuesday after tumbling the previous day on worries that the Federal Reserve could soon end its nearly two-year credit tightening cycle and nervousness about Iran's nuclear ambitions.
The US currency fell around 1 percent against the euro and hit a 2-1/2-month low versus sterling on Monday, despite upbeat data that showed more than enough capital flowed into the United States in February to offset its huge trade deficit.
The market's attention was turning to minutes of the Fed's March meeting due on Tuesday for clues as to whether the central bank would keep raising short-term interest rates beyond a widely expected increase in May, traders said.
The US producer price index for March will also provide hints about the state of inflation, while figures for housing starts will show whether weakness in the once-booming market is spreading.
"The market is looking for clues on the course of future monetary tightening, including from the PPI and the Fed's minutes," said Kikuko Takeda, currency strategist at Bank of Tokyo-Mitsubishi UFJ.
Fed officials also may give hints on their thinking, with San Francisco Fed President Janet Yellen speaking on the prospects for the economy.
A trader at a Japanese bank said that some in the market still forecast a US rate increase beyond May, while the market expects the Bank of Japan to raise rates as early as July for the first time in five years.
"The similarity in expectations for the timing of rate increases in Japan and the US is keeping the dollar/yen pair in narrow ranges," he said.
Meanwhile, the euro is seen having more room to strengthen given views the European Central Bank will boost rates gradually in the months ahead.
"The market wants to test the euro at 145 yen. Until the strength of the crosses eases against the yen, the dollar/yen won't face real selling," the trader said.
The dollar bought 117.90 yen, up from around 117.80 yen in late New York trade on Monday. Japanese investors have good-sized bids for the dollar lined up below 117.50 yen, traders said.
The jump in the benchmark 10-year Japanese government bond yield to a seven-year high of 2 percent did little to boost the yen, which has been stuck between 115.50 and 119.50 per dollar since late January.
Big Japanese institutional investors are expected to shift more funds into domestic bonds with benchmark yields near 2 percent after years of buying foreign fixed-income securities to get better returns.
The euro was at $1.2260, up from $1.2250. It edged up to 144.50 yen, closing in on the record high of 144.88 yen hit earlier this month.
Sterling was little changed at $1.7710, near the $1.7748 peak hit on Monday - the highest since early February. The dollar inched down to 1.2785 Swiss francs after having fallen as low as 1.2754 francs the previous session.
Growing geopolitical tensions over Iran's nuclear programme helped to diminish demand for the dollar and drove gold prices to a 25-year high of $618.25
Safe-haven gold also was besoted by a rise in US oil crude prices, which leapt to $70.78 a barrel on Tuesday - just below record highs.
Traders said that the rise in oil prices helped to strengthen currencies of commodity-producing countries such as Australia.
The market showed muted reaction to comments that Fed Chairman Ben Bernanke made earlier in the month but were reported for the first time late on Monday.
Bernanke said in an April 5 letter to South Carolina Republican Representative J. Gresham Barrett that the run-up in energy prices since late 2003 would not have a lasting impact on US inflation as long as the Fed conducts policy appropriately.
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