NEW YORK (AFP) - The dollar held in a narrow range a day after hitting record lows against the euro Thursday as the market mulled the prospect of possible European Central Bank intervention.
The single European currency stood at 1.2904 dollars at 2200 GMT compared with 1.2894 late on Wednesday in New York.
The dollar dropped to 106.59 yen against 107.08 on Wednesday.
The euro's rally, which saw it briefly breach the 1.30-dollar mark Wednesday for the first time since its launch in 1999, ground to a halt as the market reacted to comments from eurozone officials as well as mounting expectations of another US rate hike by year-end.
However, because of a public holiday in the US Thursday for Veterans Day, market activity has been subdued.
Kathy Lien, chief analyst with Forex Capital Markets in New York said the market is hesitant about the next moves for the euro and the dollar with the possibility of Europeans defending the symbolic 1.30-dollar level.
"Speculators are divided on the next direction, illustrating the indecisiveness of the market," she said.
In recent days, ECB officials have ratcheted up their language on the euro's rise, which could potentially grind anaemic eurozone growth to a halt.
Most importantly, the ECB's president Jean-Claude Trichet backed up his description of recent exchange rate movements as "brutal" and "not welcome".
Trichet told a conference in Palermo Thursday that it was "necessary" to say what he did on Monday, when he stated that the euro's appreciation was not welcome from the ECB's standpoint.
In light of the objections, the markets were on the lookout for possible euro selling and dollar buying from the European Central Bank.
"It's clearly on the agenda and we are now entering the zone of actual market intervention," said Neil Mackinnon, chief economist at ECU Group.
"By pushing the euro through 1.30 dollars, investors should be on alert, for we are close to the (ECB's) pain threshold," he added.
The ECB's last foray onto foreign exchange markets was in late 2000. At the time it acted in coordination with other Group of Seven countries to buy euros and sell dollars after the eurozone unit plunged to a record low of 0.8230 dollars.
The US monetary authorities were unlikely to get involved and were widely believed to be in favor of a managed depreciation in the dollar.
"The perception that the US favors a weaker dollar to help rectify the huge current account imbalance contrasts sharply with the European policy stance and is likely to become an increasing source of friction over coming weeks," said Mitul Kotecha, senior currency strategist at CALYON.
Though US officials have been notably silent about the dollar developments, alarm bells appeared to have been rung at the Bank of Japan, which has a reputation for intervening in the market to stem the yen's appreciation.
"We can't rule out joint intervention between the ECB and the BoJ," said ECU Group's Mackinnon.
The dollar was also benefiting from the US Federal Reserve's move to raise US interest rates overnight and suggestion that more rate hikes may follow.
Though the Fed's decision to raise its key federal funds rate by a quarter point to 2.0 percent was widely expected, dollar bulls were encouraged by the accompanying statement, which suggested that another interest rate hike in December remains on the cards.
The FOMC said it could continue to raise rates at "a measured pace" and that policy, even after Wednesday's hike, remained accommodative. The path of US rates now depended on the flow of upcoming economic data.
In late New York trade, the dollar stood at 1.1774 Swiss francs from 1.1808.
The pound was at 1.8411 dollars from 1.8570 Wednesday.
11/11/2004 - 22:40 GMT - AFP