The dollar fell on Wednesday, but it kept some distance from a two-month low hit against the yen earlier in the week as investors looked to the upcoming U.S. rate-setting meeting for clues about direction. Traders said rumours about an explosion in New York had put some pressure on the U.S. currency. "Although the explosion talk briefly weighed on the dollar, the market wasn't moved by it too much as it lacked credibility and because the market is waiting on a series of events next week," said a trader at a major Japanese bank. The New York police department later said there had been no explosion. At 0546 GMT, the dollar was fetching 108.63/68 yen , down from late New York levels around 109.25 yen. It fell to a two-month low of 108.23 yen on Monday.
The euro pushed up to $1.2160/63 from 1.2114/18 in late U.S. trade. Some traders said the yen may also have benefitted from the latest Japanese trade data, which showed the trade surplus in May grew 35.5 percent, just off economists' average forecast of a rise of 37.8 percent. "Overall, exports were firm as the global recovery continues," said Hiroshi Yokotani, an economist at Tokio Marine Asset Management. The yen has held firm in the past few days on speculation that upcoming Japanese indicators, including the Bank of Japan's closely watched tankan survey of corporate sentiment due on July 1, will provide more evidence of a solid economic recovery. "The dollar/yen has been weakening after hitting a high of around 115, while the euro/dollar has mostly stayed steady. I think this points to a stronger yen," said Katsunori Kitakura, manager of the treasury department at Chuo Mitsui Trust and Banking.
FOMC, US JOBS DATA
Traders said any moves would likely be limited ahead of next week's U.S. Federal Open Market Committee (FOMC) meeting. The market is expecting the Federal Reserve to raise the benchmark short-term rate by 0.25 percentage point from a 46-year low of one percent when it meets on June 29-30. Because such low interest rates are seen discouraging foreigners from investing in dollar-denominated assets, a rise in U.S. rates would be positive for the dollar, traders say. Focus is also on the U.S. jobs report for June, due next Friday. Traders say a strong reading could boost the dollar as it would raise the possibility of a further rate rise after the next Fed meeting. "I think the focus is more on the jobs report than the FOMC. People have yet to factor in what the Fed will do after June so the data could greatly move the market," said the trader at the Japanese bank. Meanwhile, sterling pushed up after hitting a one-week low of $1.8175 on Tuesday, as traders awaited the release at 0830 GMT of minutes from the Bank of England's policy meeting in early June. The pound could under pressure again if the minutes show the central bank was turning less hawkish after four rate rises in eight months, trader said. "It seems that investors are jumping on currencies whose interest rates are likely to rise in the future, from currencies whose rates have already been raised," said Yoshiharu Yanagisawa, vice president of forex trade at State Street Bank.///