The dollar maintained a firm tone against European currencies and the yen on Wednesday, holding the previous session's gains as investors speculated whether the greenback's two-year decline was over. Dollar bulls took heart from the euro's meagre response to last week's dismal U.S. jobs report, which was taken as a signal U.S. interest rate hikes were still far off but failed to give lasting support to the euro. Wariness over foreign exchange intervention by the Bank of Japan (BoJ) also weighed down the yen as traders suspected Japanese authorities of stepping in in recent days to stop the yen from rising beyond 110 per dollar. "We have not seen the dollar negatively affected by a decline in yields, which indicates that dollar bears remain on the sidelines," said Michael Klawitter, senior currency strategist at WestLB in London. "At the moment we are moving in a range, we are not back in directional trade. And we will probably stay there until the next U.S. labour report."
At 0900 GMT the dollar was trading at $1.2279 , up around a quarter percent from the previous session's New York close at $1.2318. The dollar has gained more than six cents since hitting record lows against the euro at $1.2927 in the middle of February. The move to life records had prompted a series of warnings from European policymakers about the painful effect of a strong euro which in turn knocked the euro down. The dollar was also up slightly against the Swiss franc , and higher versus the British pound which was hurt by disappointing trade data on Tuesday.
JAPAN WATCHED
Meanwhile, the U.S. currency was steady versus the yen at 111.25 . It has stayed near that level since late Monday in U.S. trade, except for a blip lower to around 110.20 yen in late U.S. trade on Tuesday. The Bank of Japan (BOJ) was suspected of intervening after that tumble to prevent the dollar from slipping under 110 yen, bringing it back above 111 yen. "They have intervened even when the yen was weakening which shows deeper resistance to letting the yen rise beyond 110 (per dollar)," said Michael Metcalfe, currency strategist at State Street in London. Japan has intervened aggressively to curb the yen's export-crimping rise. Its dollar buying has amounted to more than 30 trillion yen since last year. The yen barely budged after Japan said gross domestic product grew a real 1.6 percent during the last three months of 2003, down from an initial estimate of 1.7 percent growth.
WHAT'S HAPPENING WITH DOLLAR DECLINE
U.S. Treasuries have staged a bull run this week as falling consumer confidence and lower equities supported views that an increase in official interest rates is far in the future. But the dollar has yet to return to its long-term downtrend, a move many analysts still predict. Some said investors were waiting for more information about the U.S. economy before deciding to take the dollar in a clear direction. More U.S. data is due at 1330 GMT on Wednesday with the international trade deficit expected to have remained steady in January. Economists polled by expect the trade gap reached $42.05 billion from a December reading of $42.5 billion. U.S. retail sales for February are scheduled for publication on Thursday. "Retail sales will be very important," said WestLB's Klawitter. "But market uncertainty will persist until we see the March employment data," he said.///