Dollar Dawdles as Market Looks to Fed
TOKYO (Reuters) - The dollar shuffled in ranges on Wednesday as traders wondered if the Federal Reserve would signal an increase in the pace of policy tightening when it announces an expected interest rate rise later in the day.
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With a quarter percentage point rise in the federal funds rate already factored in, the market was on the look out for any changes to the Fed's statement that might signal a shift in its campaign of "measured" monetary tightening.
"I think the market is searching for reasons to buy the dollar," said Hideaki Inoue, chief manager of the forex division at Mitsubishi Trust and Banking.
"Any signs that the Fed would tighten policy at a faster pace will lead to dollar-buying."
The Fed statement is due after the meeting of the policy setting committee, the first of a series of closely watched events this week that includes U.S. jobs data and a meeting of the Group of Seven (G7) economic powers.
At 2150 EST, the dollar was at around 103.65 yen, little changed from late U.S. levels.
The euro bought around $1.3080, up from $1.3046 but within the past week's range between 1.3035 and 1.3090.
It also firmed to 135.55 yen from 135.30.
Traders said the strength in the single currency was due to buying of European bonds by Japanese investors.
The Australian dollar stood at 77.45 U.S. cents versus 77.40. It dipped briefly to around 77.20 after the Reserve Bank of Australia left its cash rate unchanged at 5.25 percent.
EVENT HORIZON
Dealers said they expected cautious trading to continue for the rest of the week ahead of a slew of major events.
On Friday, the market will take a look at the U.S. employment report for January and digest a speech on the U.S. current account by Fed Chairman Alan Greenspan.
Economists surveyed by Reuters say the U.S. economy likely created 190,000 new jobs in January, more than the 157,000 in the previous month.
The G7 meeting is slated for Friday and Saturday, with the market focusing on what the G7 nations will talk about with China.
Speculation that Beijing might announce a relaxing of the yuan peg to the dollar has kept traders on edge, causing volatile trading in the yen.
Many analysts say a revaluation of the yuan would put upward pressure on other Asian currencies, including the yen.
"The market now thinks there won't be any announcement by China at the G7," said Yoshiyasu Naruse, head of corporate forex sales at
"But I think upward pressure on Asian currencies will continue."
President Bush's State of the Union speech, due later on Wednesday, will also be watched closely for any outline of steps to curb a large and growing budget deficit.
Some traders said the euro could be moved by German unemployment data for January, due at 0355 EST. Unemployment is seen rising to 11.25 percent, compared with 10.8 percent in December. 
