The dollar struggled near late New York levels on Thursday after tumbling to within sight of a five-year low against the yen on surprisingly weak U.S. trade figures.
Data released on Wednesday showed that the already swollen U.S. trade deficit expanded to a record $60.3 billion in November, much more than market expectations.
That drove the U.S. currency to a low around 102.15 yen, a level not seen since early December and down from around 105 yen touched only last week.
Still, Tokyo traders held back from sending the dollar any lower in light of ongoing speculation that U.S. interest rates would rise, regardless of the weak trade figures.
"In Asia, we aren't seeing a renewed round of selling after the data and I think there might be some offsetting flows on yield differentials," said Naomi Fink, senior currency analyst at BNP Paribas.
She added that such differentials would continue to offer the dollar some support in the near term as U.S. inflation risks were seen spurring the Federal Reserve to keep raising rates.
At 10:30 p.m. EST Wednesday, the dollar traded at 102.55 yen, little changed from late New York levels.
The yen barely flinched at data showing that Japan's current account surplus shrank 19.3 percent in November from a year earlier to 1.2038 trillion yen ($11.75 billion), in line with market expectations.
DEFICIT CONCERNS EASE?
While the dollar was positioned to test the five-year low of 101.83 yen touched in early December, analysts said the market's failure to push the dollar past 102 yen on Wednesday showed that U.S. deficits was not the only issue on the currency market's radar.
"This could be a sign that the dollar's one-way selling in the past few months on concerns about the U.S. deficits could be letting up a bit, particularly as the market refocuses on interest rate differentials," said Kikuko Takeda, currency analyst at the Bank of Tokyo-Mitsubishi.
The dollar was at $1.3250 per euro compared with 1.3256 in New York, where it had fallen more than 1 percent. It was well off the 1- month high of $1.3025 touched late last week.
The single European currency fetched 135.85 yen, also little changed.
Analysts said that the euro was poised for more losses against the yen after the European Central Bank said earlier in the week that Asian currencies must do more to bear the burden of a weaker dollar.
This is widely expected to be a key issue at a meeting of Group of Seven finance ministers next month.
The dollar was also under pressure against sterling and the Swiss franc, having suffered considerably in overseas trading.
It was at $1.18892 against the British pound, roughly unchanged from New York levels, after falling more than one percent after the trade data was announced.
The dollar bought 1.1675 Swiss francs after plunging nearly two percent overseas.
Market players said the dollar's three-year decline may now be tempered by rising U.S. interest rates.
During the dollar's sharp slide at the end of last year, the market focused almost exclusively on the belief that a weaker dollar was needed -- and perhaps wanted by U.S. officials -- to help to narrow the trade gap.
Interest rate talk has intensified since the latest minutes from the Federal Reserve's policy-setting committee showed members were concerned about inflation risks, which could result in higher rates and improve the appeal of U.S. assets such as short-term deposits. (