TOKYO - The dollar slipped on Wednesday to hold near a record low against the euro, but the market hesitated to drive down the U.S. currency further before closely watched economic releases later in the week
After weeks of heavy selling on worries about the twin U.S. deficits and central banks diversifying out of dollars, the dollar has stabilized in recent days on profit-taking and worries about intervention by Japanese officials.
"This is a week for the dollar to slowly recover," said one head trader at a European investment bank.
Remarks by European Central Bank President Jean-Claude Trichet suggesting the bank was unlikely to intervene in favor of the dollar drove the currency to a new record low against the euro on Tuesday, but traders said that swift slide seemed to have eased.
Market players were turning their attention to a slew of economic indicators due in the United States this week, including manufacturing data on Wednesday and the monthly payrolls report on Friday.
If the reports reinforce expectations that the Federal Reserve will steadily lift U.S. benchmark interest rates, the dollar could receive support, said some traders and strategists, though economic news has been mostly ignored in the two-month dollar sell-off.
In late Tokyo trade, the dollar fetched around 102.75 yen, down from 103.08 in late U.S. trade but above Friday's low of 102.15 yen -- the lowest rate since March 2000.
The yen gained despite a 1 percent slide in the Nikkei stock average that took it to a one-month closing low.
Selling of dollars for yen was driven mainly by exporters, especially as the U.S. currency stood above 103 yen. But traders said there were big bids to buy dollars at 102.50 yen, potentially limiting any further losses.
The euro bought around $1.3315, up from $1.3282 in late New York trade but below the record high of $1.3336 reached overnight.
The euro was a tad down at 136.75 yen.
ECB VIGILANCE
ECB President Trichet said again on Tuesday that recent moves in the euro were not welcome but also expressed confidence that the United States would act to reduce its huge deficits.
He also repeated the ECB's vigilance against inflationary pressures, suggesting Europe would tolerate the euro's current strength because it should mitigate the impact of higher energy prices, analysts said.
For now, the fragile dollar was expected to stay relatively stable until Friday's jobs data.
"The dollar remains in a correction phase from recent heavy selling" said Toshiaki Kimura, chief forex manager at Mitsubishi Trust and Banking.
But Kimura said the dollar's stabilisation "lacks strength" and fears about the U.S. deficits could quickly undermine the currency again.
Dealers also remained wary about potential Japanese intervention to underpin the dollar against the yen, especially with the U.S. currency trading under 103 yen.
"There is caution, particularly from overseas investors, that the Japanese could intervene massively," said Kaoru Kondo, chief forex analyst at Fisco. "So the market is reluctant to aggressively sell the dollar."
The Japanese government said late on Tuesday that it did not conduct any yen-selling intervention in November, in line with market expectations.