The dollar was trapped in narrow ranges against other major currencies on Wednesday as investors struggled to sort out what record-high crude oil prices mean for currencies and the global economy.
Dealers said worries that crude oil prices of over $70 a barrel would slow consumer spending in the United States were keeping investors cautious, even in the face of US data on Tuesday that showed the American consumer was holding up well.
The surge in oil prices has raised doubts about whether the Federal Reserve will keep raising interest rates into 2006, extending the tightening campaign that has helped the dollar rebound this year from a three-year slump.
Minutes from the Fed's August meeting, released on Tuesday, showed most policy-makers were worried inflation risks had "ticked up" recently. But they also suggested the Fed was concerned that rising energy costs could force a slowdown in consumer spending.
The oil price spike has also led some traders to bet that the economies of export-dependent Asian nations such as Japan will slow, hurting their currencies.
"The market is taking oil prices as an incentive to sell the yen," said a trader at a Japanese trust bank. "But in reality, many investors are not really sure if the Japanese economy is more vulnerable to higher oil prices than the US economy."
Morgan Stanley currency strategist Stephen Jen said in a research note that higher oil prices were "unambiguously bad" for Asian countries including Japan, most of which are almost entirely dependent on imported oil for their energy needs.
The dollar edged up against the yen in early trade, but was beaten back down as Japanese exporters took the chance to sell dollars at close to a three-week high.
The dollar was at 111.30 yen, a tad firmer on the day and not far off a three-week peak around 111.60 yen hit on Tuesday.
Foreign investors were heavy buyers of Japanese stocks earlier in the month, spurred by signs of an improving economy, and polls suggesting that reformist Prime Minister Junichiro Koizumi would fare well in a September 11 general election. The euro was trading at around $1.2210 rising slightly from late Tuesday US trade.