The dollar fell against the euro on Tuesday as dealers waited for U.S. trade deficit figures to decide whether to keep buying back the U.S. currency.
The market had pushed the euro down about four percent against the dollar last week, one of the euro's biggest falls in a week versus the dollar since the single currency was launched in 1999.
Whether the market continues to buy back dollars after the U.S. currency's crushing losses at the end of 2004 depends on U.S. trade figures due on Wednesday, analysts said.
"If the trade data is not that bad, the market will continue to buy back the dollar, but if it is disappointing, the sell-off could resume," said Tohru Sasaki, chief forex strategist at JPMorgan Chase Bank.
He added that overall the weak dollar trend had not changed.
At 9:52 p.m. EST, the euro hovered around the day's high of $1.3132. That was up from $1.3073 in late New York trade, with Tokyo traders returning to the market after a national holiday on Monday.
Some dealers said the euro's gains were driven in part by comments from U.S. Treasury Secretary John Snow reaffirming the need for the market to set the dollar's exchange rate.
However, others argued that Snow's remarks, which many considered a rehash of what was already known in the market, had minimal effect on currencies.
The euro fetched 136.60 yen after falling as far as around 136.25 yen in New York, a level not seen since early December.
The euro lost about 2.5 percent against the yen last week, taking its cue from losses in the euro/dollar. It had risen to a record high of 141.60 yen at the end of December.
The dollar was at around 104.05 yen, down from 104.34 in late U.S. trading.
"It's a bit hard to see the dollar/yen going down too much given the momentary weakening in the euro/dollar, so for the moment, it should stay in range," said Sasaki at JPMorgan.
While traders said that dollar/yen trading would be supported by stop-loss orders lined up around 103.75 yen, they added that resistance was building around 105 yen.
Some warned that this could set the stage for a fall in the dollar to around 103 yen or even 102 in the near term.
For now, market players said dollar positioning was basically neutral, after traders had unwound short dollar positions over the past few weeks.
The market was biding its time before the announcement of U.S. trade deficit figures.
A poll showed that the deficit narrowed to $54.0 billion in November from a record $55.46 billion in October, as slow overseas demand was offset by a drop in oil prices and a weaker dollar.
An upbeat figure could offer some support for the dollar, which has received a battering since the market started fixating on the U.S. trade and budget deficits.