The U.S. dollar took a breather from its recent rally during transactions in Asia on Wednesday as traders sold the greenback to lock in profits.
The dollar was trading at 105.54 yen by midafternoon, up 0.29 yen from late Tuesday in Tokyo, and below the 105.75 yen it bought in New York later that day.
The euro rose to US$1.2772 Wednesday afternoon from US$1.2769 late Tuesday but rose to 134.78 yen from 134.54 yen.
The dollar also was stronger against other regional currencies from previous levels, edging up to 55.060 Philippine peso from 54.93 the previous day, and to 1.6487 Singapore dollar from 1.6479. It also was higher at 38.625 Thai baht from 38.535.
Speculators sold the dollar to lock in profits after its surge overnight in New York to a two-month high.
"The mood's growing dollar-bullish, but compared to yesterday, there are fewer dollar shorts to unwind," said Minoru Shioiri, senior foreign exchange manager at Mitsubishi Securities. "That means that 106 yen isn't going to give as easily as 105 yen did."
Although the dollar has recovered significantly in recent weeks, players are unsure how long the dollar's rise will last.
Still weighing on the dollar are worries about the massive U.S. trade and budget deficits. But signs lately that the Bush administration remains committed to reining in spending to gradually reduce the deficit have reassured the market about the prospects for the dollar.
U.S. President George W. Bush's budget proposal delivered earlier this week was largely welcomed by investors as astep toward reducing the U.S. budget deficit.
Also helping the dollar is the recent decline in speculation about any imminent change in China's currency policy. Some officials have said the yuan, now pegged to the dollar, is too low.
However, a meeting of finance officials from the Group of Seven industrialized nations ended last week without any significant pronouncements on the issue, and the meeting was widely seen as reflecting relative content with the dollar's recovery.