The dollar bounced higher on Tuesday as investors closed bets on further losses in the U.S. currency which hit a series of record lows against the euro in the final days of 2004.
The greenback extended the previous day's rebound to $1.3359 , recovering three cents from an all-time low against the euro hit late last week.
It also pulled away from last month's multi-year lows against the yen, Swiss franc and British pound.
"Momentum and technical funds are bailing out of short dollar positions," said Ian Gunner, head of foreign exchange research at Mellon Bank.
The dollar has now notched up three consecutive years of losses and most analysts expect the currency to fall further in 2005 in order to correct the United States' huge current account deficit.
However, the speed of the dollar's decline in the past two weeks meant some correction was not unexpected.
"We had some fairly sharp moves amid thin liquidity so it's unsurprising we've seen a bit of profit-taking and a bit of a bounce back," said Mitul Kotecha, head of global foreign exchange research at Calyon.
At 6:25 a.m. EST, the dollar was up 0.65 percent at 103.38 yen and over half a percent up at $1.3385 per euro.
DATA DELUGE
A host of data releases had little impact on Europe's single currency as technical trading dominated.
But more evidence of a slowdown in Britain's housing market and its manufacturing sector did weigh on sterling, which slid to a one-month low below $1.8930.
Data on Tuesday showed the number of home loans approved in Britain fell to its lowest in more than nine years in November, while mortgage lending growth was at its lowest since June 2002.
"All of this points to a slowing housing market, which is negative for sterling," said Ian Stannard, foreign exchange strategist at BNP Paribas.
A survey showing British manufacturing growth slowed in December also gave ammunition to those who believe the Bank of England will cut interest rates in the coming months.
In Germany, data showed unemployment rose for the 11th consecutive month in December to 4.483 million, giving an unemployment rate of 10.8 percent in the euro zone's largest economy.
But inflation in the euro zone rose to 2.3 percent in December, making it harder for the European Central Bank to consider cutting interest rates in response to the euro's strength.
The ECB, which aims to keep inflation close to but below 2 percent, is expected to keep interest rates unchanged at its next meeting on January 13.
EYES FORWARD
Friday's non-farm U.S. jobs data is the big theme of the year's first trading week, with a rise of 175,000 forecast in December after a gain of just 112,000 in November, according to the median forecast of a poll.
Before that however, U.S. factory orders for November are due at 10 a.m. EST on Tuesday and minutes of the Federal Reserve's Dec. 14 meeting are set for publication at 2 p.m. EST.
On Monday, the Institute for Supply Management's manufacturing index for December climbed slightly more than expected but manufacturing jobs remained hard to find.
Dealers were also keen to hear how policymakers would react to the dollar's recent weakness.
European Central Bank council member Christian Noyer told a newspaper the euro's rise in trade-weighted terms was not as great as its gains against the dollar, although he added recent moves in the dollar were not welcome.