The US dollar ended off its highs in Asian trade and is likely to remain supported on expectations of higher US interest rates.
After ending off its best levels overnight, the dollar resumed its rise in Asia but the advance lacked momentum, dealers said.
"The still wider growth and yield differentials between the US and the euro area, and also Japan, apparently continued to maintain investor preference for US dollar-denominated assets," strategists at Singapore United Overseas Bank said.
"But uncertainties surrounding the US growth outlook, in our judgment, have undoubtedly injected more caution in financial markets," they said.
Some dealers also said last night's failure of the US Treasury yield to break convincingly above 4.50 pct was also a factor for the cautious tone in Asian financial markets today.
Still, with euro and yen both having given up their recent key support levels of 1.1900 usd and 115.00 yen respectively, players were ready for any fresh impetus to push the dollar higher.
Euro-dollar traded heavily for much of the Asian session as it first fell to 1.1926 usd before taking back a few notches. It slipped again soon after, this time to 1.1922, before recovering slightly. The euro held tight above the 1.1920 usd level in the afternoon but a trigger of a reported option barrier sent it lower in late action. The fall gained momentum and eventually touched a low of around 1.1897 before dollar profit-taking cushioned the fall.
Euro-yen rose early to 138.45 yen but fell back to 138.07 as euro positions were unwound, causing banks out of Tokyo to also sell down the cross.
Dollar-yen opened near 115.65 yen this morning and was quickly lifted above 115.70, holding above that level through the morning session. Dealers said the initial rise was prompted by euro-yen demand. The dollar touched a high of 115.87 yen in the morning, trading in the 115.75-115.87 band in the afternoon session with the overall bid tone disrupted only by sporadic shallow dips. The next key target for dollar-yen would be a break of the 115.94 overnight high and offers just ahead of 116.00 while hefty stop losses are rumored to be higher. If these are triggered, the resulting momentum could drive the dollar toward 116.40/50 yen, traders said. However, there is some concern over Hurricane Wilma, which may approach the US coastline, after the US National Hurricane Center said on its website at 2.30 am EDT that Wilma has intensified into an "extremely dangerous" Category 5 hurricane. "Overall the risk still looks to be to the upside," currency dealers at UBS AG said. "There are some offers around 115.90-116.00 yen, but from 116.10 up to 117.00 there are a lot of stops in the market," they said. "We still prefer to buy dips to 115.60-70, looking for a break of 116.10 later and targeting next 116.50."