The dollar steadied on Friday, holding onto gains made the previous day on increasing interest rate differentials as the market braced for U.S. employment figures and a meeting of the Group of Seven rich countries.
A strong reading in the U.S. non-farm payrolls data for January, due at 8:30 a.m. EST, would likely reaffirm the Federal Reserve's commitment to raising interest rates, further boosting the dollar, traders said.
Meanwhile, traders are anxious to hear comments from U.S. Federal Reserve Chairman Alan Greenspan and People's Bank of China Governor Zhou Xiaochuan at a conference in London on Friday ahead of G7 policymaker talks.
"From the strength of the dollar it's probably fair to say that the market is anticipating firm payrolls data," said Tim Fox, currency strategist at National Australia Bank.
"The consensus has crept up as we have seen strong ISM figures this week."
The dollar was flat at around 104.45 yen at 3:48 a.m. EST after rising around 1 percent on Thursday to 3-week highs near 104.75.
The euro was also little changed at around $1.2970 after losing about 0.5 percent on Thursday.
The euro found support in European trade after Russia's central bank said it had begun targeting the rouble's nominal exchange rate against the euro as well as the dollar, in a dual currency basket made up of 90 U.S. cents and 10 euro cents.
Talk of repeated euro buying by central banks such as Russia's helped propel the euro to record highs against the dollar last year.
MORE YIELD FOR DOLLAR
The European Central Bank left its key interest rate unchanged at 2 percent on Thursday, a day after the U.S. Federal Reserve raised its federal funds rate to 2.5 percent, so increasing the yield appeal of holding dollar assets.
"The dollar is being bought back on increasing interest rate differentials and expectations of a change in U.S. budget policy," said Osamu Takashima, chief forex analyst at Bank of Tokyo-Mitsubishi in Tokyo.
President Bush will present the tightest budget of his presidency next week.
Talk has waned that China is looking to revalue the yuan any time soon, a move which would have an upward impact on other Asian currencies.
But traders were still looking to comments from this weekend's G7 meeting, to which Brazil, India, Russia, China and South Africa have been invited.
China's central bank governor Zhou Xiaochuan is to give a keynote address at a conference during the European morning.
China has been under pressure from Washington to revalue the yuan as U.S. manufacturers say the Chinese currency is artificially cheap and saps U.S. jobs and exports.
U.S. FOCUS
For payrolls, economists surveyed by expect an increase of 190,000 jobs in January, compared with 157,000 in December. The data is due at 1330 GMT.
Also coming up are comments on the U.S. current account deficit by Fed Chairman Alan Greenspan at 8:45 a.m. EST.
While most analysts and traders do not expect Greenspan to shed new light on his views, his comments could underscore the Fed's ongoing worries and desire to see the dollar fall gradually to help correct the mammoth gap.
Starting late last year, Fed officials began expressing more clearly their fears about the threat posed by the swelling current account deficit and suggesting a further dollar fall would be needed to help reverse the trend.
The Fed has steadily raised its target for the fed funds rate over the last six months, taking the key rate to 2.5 percent from 1 percent as it seeks to return the rate to what it considers a "neutral" level.