TOKYO - The dollar traded in a thin range against the euro and the yen on Friday as traders waited to see if U.S. economic data due later in the session could breathe life into a stalled market.
Analysts and traders said the market was torn between the dollar-positive factors of rising official interest rates and strong growth on one hand and the persistent drag of the massive U.S. current account and budget deficits on the other.
Taisuke Tanaka, a forex strategist at Morgan Stanley in Tokyo, said the dollar would be supported against the yen in the short term by rising U.S. rates, even if it fell against the euro on worries about the deficits and inflation.
"In the yen market, players are mainly focusing on the interest rate differential between the U.S. and Japan," he said. "There are many mixed factors in the forex market at the moment, with some affecting the yen and others affecting the euro."
Revised U.S. gross domestic product data for the last quarter of 2004 is due at 8:30 a.m. EST.
The median forecast in a poll is for a rise to 3.7 percent from 3.1 percent, mainly due to an unexpected narrowing of the trade gap in December. Forecasts ranged from 3.3 to 4.1 percent.
Federal Reserve Board Governor Ben Bernanke gave the market reason to expect a strong figure, saying on Friday he expected the revision to show growth of around 4 percent.
Some analysts said an upward surprise could boost the dollar.
"If there is an upward revision like Bernanke is saying, it could be mildly supportive for the dollar," said Naomi Fink, a senior currency analyst at BNP Paribas in Tokyo.
Bernanke also said he was comfortable with the Fed's measured pace of tightening policy, but he also said the size of the U.S. current account deficit was unsustainable.
The Fed's funds rate is now 2.50 percent, up from 1 percent last June. Markets widely expect it to be raised to 3 percent by early May.
At 1:21 a.m. EST, the euro was unchanged against the dollar at around $1.3199 but down from a peak this week near $1.3270. It has shed 2.7 percent against the dollar this year.
The dollar was also unchanged at 105.31 yen having already rebounded from a low around 103.80 yen hit on Tuesday. The dollar is up 2.8 percent against the yen so far this year.
Kosuke Hanao, head of forex sales at Royal Bank of Scotland in Tokyo, said there was "decent demand" for dollars from Japanese investors but exporter selling to convert overseas profits to yen was keeping the dollar below 106 yen for now.
The yen traded at 139.10 yen per euro near a seven-week low of 139.34 hit on Thursday.