The dollar stabilised this morning after rallying in the first week of 2005, as the market waited for closely-watched U.S. jobs data for clues on future interest rate policy.
Trade was cautious ahead of U.S. non-farm payrolls data for December, due at lunchtime, after volatile trading this week. The payrolls numbers are the first major figures to be released this year and an improvement in the job market could cement expectations of more US interest rate rises.
"I think the risks are for a stronger than expected payrolls number and that would tend to add to the dollar's recent gains," said Adam Cole, senior currency strategist at Royal Bank of Canada.
"It is the first really significant indicator for the month so it tends to set the tone," he added.
Economists forecast the payrolls figures would show that 175,000 new jobs were generated last month.
Since the start of the year, the dollar has climbed almost five cents from record lows set against the euro set in late December. It was driven largely by expectations of upbeat economic data and expectations of more Federal Reserve interest rate rises.
Early this morning the dollar stood at $1.3194 per euro, down around 0.2 percent on the day. It fetched 104.63 yen, down over a third of a percent from the New York close.
Sterling briefly gained ground against the euro and the dollar after a survey from the country's largest mortgage lender, Halifax, showed that house prices in December rose 1.1 percent from November.