The dollar traded within a cent of recent record lows against the euro on Tuesday as market players took advantage of a brief rise in the US currency earlier to sell it amid broadly bearish sentiment. With thinning volumes and little major economic data the market has little to trade on this week, and some investors had closed their short-dollar positions, pushing it higher after several weeks of record dollar lows against the euro due to concerns about the US current account deficit. But the dollar's recovery quickly lost steam.
"The market is assuming that the positioning adjustment process has already taken place," said Ian Stannard, currency strategist at BNP Paribas in London. "This may drag some short-term players back into the market. However, I am not convinced we have seen the correction completed."
By 1245 GMT the dollar was steady on the day at $1.3395 per euro, less than a cent above this month's record low. It was 0.3 percent higher at 104.39 yen, more than 2 yen above a recent 5-year low.
"Investors are reluctant to take the dollar significantly higher and we are having thin markets," said Kamal Sharma, currency strategist at Dresdner Kleinwort Wasserstein in London. "The market still prefers to sell the dollar on rallies and we bounced off (euro) support at $1.3350 per euro."
The British pound was 0.6 percent lower against the greenback following a housing survey which showed falling house prices, and the New Zealand dollar was also 0.5 percent down after New Zealand's current account showed a much wider than expected deficit in the third quarter.
A new Federal Reserve official, Richmond Fed President Jeffrey Lacker, said on Monday in his first speech in the position that a weaker dollar shouldn't spark inflation and would help to boost exports and limit imports.
But he also said that if a slowdown in productivity growth prompted companies to raise prices, the Fed may need to be more aggressive in its credit tightening campaign.
So far in 2004, the dollar has fallen around 6 percent against the euro and 3 percent versus the yen. Since its slide began in early 2002, the dollar has shed around 50 percent of its value against the euro and 26 percent versus the yen.
In Europe the president of Germany's Ifo economic research institute said the European Central Bank should intervene in the foreign exchange markets to weaken the euro against the dollar.