The dollar moved sideways but held above a 15-year low against a basket of currencies on Thursday as investors awaited testimony from Federal Reserve Chairman Ben Bernanke later in the day for more clues on monetary policy.
The Fed slashed the federal funds rate to 4.75 percent from 5.25 percent this week to shield the US economy from a deepening housing slump and credit market turbulence. The dollar rose broadly in the previous session as investors bet that the Fed's larger-than-expected cut would shore up the US economy.
"The currency market is likely to look at the reaction in the US stock market for direction after Bernanke's comments," said Masashi Kurabe, a senior manager of forex trading at Bank of Tokyo-Mitsubishi UFJ. The dollar index edged lower from late US trade to 79.237, after rebounding from 79.091 the previous session, its lowest since 1992. The US currency was little changed against the yen at 115.90 yen.
The euro was steady at $1.3970, staying within reach of its record high of $1.3989 hit earlier this week. While the dollar was supported as investors took the view that the easier monetary policy improved US economic prospects, traders and analysts said the greenback is expected to weaken in the long-term, once investors look again at rate differentials.
"Given that the Fed is likely to cut interest rates further, I think the trading range in dollar/yen will fall to 105-115 yen in the next few months from the current 115-120 yen," said a senior trader at a Japanese bank. Most market players expect another Fed rate cut in October to 4.5 percent, but such a level is seen as marking the end of the central bank's monetary easing cycle.
High-yielding currencies rose as Asian stocks consolidated their gains after a two-day rise in US stocks following the Fed's move, supporting a risk appetite among some investors who returned to carry trades, in which a low-yielding currency is borrowed to fund investments in higher-yielding assets.
The Australian dollar rose 0.3 percent to 85.90 US cents after striking a six-week high of 85.98, while advancing 0.2 percent against the yen to one-month highs near 99.60 yen. The New Zealand dollar eased 0.3 percent to 73.30 US cents after touching a one-month high of 73.77 earlier in the session. The kiwi fell 0.5 percent against the yen to 84.90 yen
The Nikkei share average was flat after marking its biggest one-day percentage gain in more than five years in the previous session. Sterling stayed under pressure after hitting a 17-month low against the euro in the previous session as traders interpreted the minutes of this month's Bank of England meeting as signalling possible interest rate cuts in the future.
The pound was steady against the dollar at $1.9997 The euro was little changed at 69.80 pence after hitting a 17-month peak of 69.97 pence in the previous session in the wake of the BoE minutes.