The US dollar held near this week's two-year high against the yen and was steady versus the euro on Thursday, with focus on whether the European Central Bank would deliver a hawkish message later in the day.
The ECB has upped its anti-inflation talk in recent weeks, triggering speculation that it will lift its key rate from 2 percent in December or early in 2006 to end two-and-a-half years of steady interest rates.
It is not expected to raise rates at Thursday's meeting but expectations that ECB President Jean-Claude Trichet could use the subsequent news conference to signal a near-term rate move briefly pushed the euro to this year's high against the yen.
"There is some talk in the market that the ECB could move today but we think this is unlikely," said Craig Chan a currency strategist at Royal Bank of Scotland in Hong Kong.
"If they hold rates steady and don't change the tone of their comments, which are already hawkish, there is scope for a correction in the euro, especially against the yen."
The euro fetched $1.2069, little moved from late New York trading on Wednesday.
Against the yen, the euro hit a 2005 high slightly above 141 yen and then held close to that level. The euro has strengthened about 3.5 percent versus the yen in the past month.
"At the very least, Trichet is likely to repeat his warnings of higher inflation," said John Kyriakopoulos, currency strategist at National Australia Bank.
"While heightened expectations of an ECB rate hike over coming months are providing increased yield support for the euro - it is well supported below $1.2000 - the risks of disappointment are also building, should the ECB not raise rates soon, as the Fed surely will again in December."
The dollar stood at 116.82 against the yen, holding near two-year peaks hit overnight just shy of 117 yen.
The low-yielding yen has been one of the biggest victims of the focus on interest rate differentials because Japanese interest rates are virtually zero.
But Asian trading was generally thin with Japan's markets closed for a national holiday.
Focus will shift again to the outlook for US interest rates when Federal Reserve Chairman Alan Greenspan testifies on the economic outlook before the Joint Economic Committee in Congress later in the day.
His comments, due to begin at 1500 GMT, are likely to reinforce expectations for further US rate increases and that could provide the dollar with some support, analysts said.
"The market is expecting a fairly upbeat assessment by Greenspan. This is one reason why the euro is not trading significantly higher against the dollar but is in a range," said Royal Bank of Canada currency strategist Greg Gibbs.
The Fed on Tuesday raised rates for the 12th consecutive time to 4 percent and gave no indication of pausing its inflation-curbing campaign.
Swiss National Bank Chairman Jean-Pierre Roth said on Wednesday current rates were not appropriate for an economy that was recovering, an indication the Swiss central bank is close to raising rates. This continued to support the Swiss franc.