The dollar shuttled in a narrow range against the euro and yen on Tuesday as its sharp rebound at the end of last week made traders nervous of betting against further greenback losses. The dollar's rise of nearly four percent from last week's record lows against the euro and 3-1/2 year lows versus the yen jolted long-time dollar bears, prompting a scramble to buy back the U.S. currency to cover short positions. Traders were now looking ahead to Germany's Ifo business confidence survey at 0900 GMT, U.S. consumer confidence data at 1500 GMT and testimony by U.S. Federal Reserve chief Alan Greenspan before a Senate Banking Committee hearing, also at 1500 GMT.
"The market is a little uncertain about where next to take the major currency pairs," said Paul Robson, international economist at Bank One. "The Ifo survey will be a major focal point and the market will be watching for signs that euro strength is dampening confidence." The dollar stood at 108.44 yen at 0830 GMT, little changed from Monday's New York close. The greenback hit a three-month high around 109.40 yen on Monday, up four percent from 3-1/2 year troughs set two weeks earlier, before pulling back on profit-taking. The euro was a touch firmer at $1.2550 , having touched a three-week low around $1.2450 in early trade on Monday.
MORE BUYING AHEAD?
Traders said that fund managers who had sold the dollar heavily during its two-year bear market had not finished buying back the unit. The Japanese authorities bought a monthly record of seven trillion yen ($65 billion) worth of dollars in January, during which the dollar traded well below current levels. This meant that many traders who were on the other side of the deals were now incurring losses they might have to cut, traders said. "Speculative dollar-selling had piled up so much that the market was susceptible to an adjustment even without any trigger," said Koichi Ono, economist at Daiwa Institute of Research.
Japanese Finance Minister Sadakazu Tanigaki, while declining to get drawn into the debate over whether the dollar's latest rally was sustainable, said the market was seeing some reversal of speculative dollar selling that occurred after a Group of Seven meeting in Dubai last September. Still, many traders do not expect the dollar to rise above 110 yen and much less to go back to pre-Dubai G7 levels above 115 yen, given lingering worries about the U.S. current account deficit. The market is also keen to hear from Greenspan, who is due to make an unusual number of public appearances this week -- speaking on Tuesday, Wednesday and Friday. On Monday the market showed no reaction to his comments that U.S. consumers seemed in good financial shape as rising home prices provide cushions for their debt.///