The dollar seesawed against the euro on Thursday, drawing some support from the US Federal Reserve's policy statement which suggested the central bank might be a step closer to raising interest rates.
After falling to a session low of $1.2410 in early Tokyo trade, the euro moved up to a high of 1.2505 before settling at 1.2461/64. It fetched 1.2480/85 in late US trade on Wednesday.
"Basically, I think it's range-bound," said Junya Tanase, foreign exchange strategist at J.P. Morgan Chase. "The dollar initially gained after the Fed but since any rate hike isn't likely to happen anytime soon, it fell back."
The Fed decided on Wednesday to keep interest rates unchanged but dropped a phrase referring to a "considerable period" of loose monetary policy from its statement and replaced it to say that it would be "patient in removing its policy accommodation".
The market was also cautious ahead of a February 6-7 meeting of the Group of Seven industrial countries.
"The G7 meeting is still the biggest issue, but the Fed statement seems to suggest the United States is not totally unconcerned about inflation or a sharp drop in the dollar," said Toru Umemoto, currency strategist at Morgan Stanley in Tokyo.
He said there might be a chance that Washington was warming to the idea of letting the communiqué at the G7 meeting reflect concerns in Europe and Japan about the dollar's big decline over the past several months.
The dollar was steady against the yen, hovering at around 106.02/07 yen.
Traders said the US currency was also supported by wariness of yen-selling intervention by Japanese authorities after a brief spike-up on Wednesday, which they said was most likely caused by intervention.
Traders said it was too early to say the dollar had bottomed out, given persistent worries about the ballooning US current account deficit and geopolitical risks.
"The Fed's statement surprised the market at a time when the focus has been on the G7 meeting," said Hideaki Furumaya, head of the corporate desk at Trust and Custody Services Bank.