The dollar was trading slightly higher against the yen and euro in afternoon trading here, having dipped earlier in the Asian session when China set its yuan reference rate at a new high against the greenback, dealers said.
At 3.17 pm (0717 GMT) here, the dollar was at 109.76 yen, up from 109.62 yen in Tokyo about 3-1/2 hours earlier. The euro was at 1.2886 usd, down from 1.2922 usd in Tokyo.
The dollar had started the day slightly weaker, with dealers blaming a US newspaper report over the weekend which suggested that the US government was "quietly acquiescing" in a weaker dollar, hoping this would help to narrow the US trade deficit by realigning world currencies.
However, the suggestion was countered, and the dollar recovered slightly, dealers said, after Japanese Finance Minister Sadakazu Tanigaki reportedly said US Treasury Secretary John Snow had re-affirmed a "strong dollar" stand to him when they spoke last week.
China's announcement of its daily dollar-yuan central parity rate, which was set at a new post-revaluation high of 7.9982 yuan, then piled more pressure on the dollar, dealers said.
n though speculation had been rife that China would allow the yuan to strengthen beyond 8.00 to the dollar, possibly as a symbolic gesture of its commitment to an eventual floating exchange rate, dollar-yen lurched to a 109.34 yen low in a knee-jerk response, dealers said.
But the dollar recovered in late Asian dealing.
"Underlying sentiment for the greenback remains weak, but the market is turning cautious in a quiet week," said DBS Bank in a currency market note.
"Euro-zone officials can be expected to complain about euro strength as the single currency threatens 1.3000 usd, while Japan will be closely watched for interventionist tendencies, now that dollar-yen has broken below 110.00 yen," the note said.
Dealers said euro profit-takers continued to put euro-dollar under pressure through the afternoon here Later today, the US Treasury International Capital Systems (TICS) data, which show foreign demand for long-term US assets, are due for release. Initial estimates for the TICS range from 70 bln usd to 100 bln usd, compared to the 86.9 bln usd seen in February.