The dollar fell against the euro today as traders wondered if the US currency's rally spurred by last week's upbeat US payrolls data had been overdone.
But the dollar gained traction against the yen, which slipped across the board for a second day on caution that the Japanese currency had risen too far too fast on expectations that the Bank of Japan could raise interest rates as early as next week.
Few market players forecast the US currency would keep falling against the euro, as buoyant job numbers for December reined in expectations that the Federal Reserve might cut rates in coming months, a move that would erode the dollar's rate advantage, analysts said.
Fed Vice Chairman Donald Kohn said on Monday that the US economy was poised for moderate growth and lower inflation, but there was no guarantee that core inflation would continue to ease, suggesting the central bank is in no rush to cut rates.
By 5.30am, the euro rose to $1.3040 from around $1.3025 in late US trade yesterday, when the single currency touched six-week lows near $1.2970 before recovering.
The dollar inched up to 118.90 yen from 118.80 yen. The euro firmed 0.2 per cent to 155.00 yen extending its rebound from a one-month low around 153.65 yen marked in the previous session. The high-yielding sterling and New Zealand dollar further trimmed last week's sharp losses against the yen.
The Australian dollar also benefited against the dollar and the yen from a modest rise in retail sales that kept alive speculation the Reserve Bank of Australia could boost rates this year.
The dollar's rise against the yen was tempered by growing expectations that the Bank of Japan could bump up the overnight call rate to 0.5 per cent from 0.25 per cent at a policy meeting on January 17th-18th.