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Such a view kept the dollar broadly weak, hovering near a record low against the euro and a three-year trough versus the yen ahead of the Institute of Supply Management’s index of service sector activity due later in the day.
Traders said they were also awaiting US payrolls figures due on Friday, the most anticipated release of the week. Weak data could support the view that aggressive interest rate cuts may be needed to lift the struggling US economy.
“The market is taking a break after the dollar’s fall late last week and into this week, and before upcoming payrolls,” said Hiroshi Yoshida, forex manager at Shinkin Central Bank.
The dollar has plunged roughly 5 percent against the yen in the past week or so while the euro has climbed around 3.5 percent versus the US currency, and market participants see more dollar losses on the way.
The dollar was unchanged around 103.35 yen holding gains after receiving a boost from US stocks on Tuesday on a report that a deal to rescue ailing bond insurer Ambac Financial Group was near.
Still, the US currency remained near a three-year low of 102.60 yen hit earlier in the week, and was at 73.722 against a basket of major currencies, near its lowest level ever.
The euro traded around $1.5195, inching down from levels in late New York trade, but stayed close to a record high around $1.5275 hit on Monday.
Against the yen the single European currency traded around 157.00 yen, keeping Tuesday’s gains.
Focus on data
On the US data front, the ISM’s non-manufacturing index due at 1500 GMT is expected to produce a reading of 47.0 in February, above January’s 44.6 but still below the level of 50 that separates expansion from contraction.
A second month of shrinkage in the index would lend considerable support to analysts who say the United States is already in recession and the economy is contracting.
According to a history of the index’s composite gauge, the non-manufacturing component hit a record low in January, which had initially sparked fears that the US economy was already in a recession.
“If we see a weak ISM reading and then weak jobs figures later in the week, we could see a push in the dollar/yen towards 100 yen,” said Hideki Amikura, a forex manager at Nomura Trust and Banking.
A jobs report by ADP Employers Services due at 1315 GMT is considered a prelude to crucial payrolls due on Friday, and traders said that a weak reading later in the day could trigger more dollar selling.
Also due on Wednesday are a reading on US factory orders and the Federal Reserve’s Beige Book, which market participants will pore over for clues on how much pain the economy is in.
Many in the market expect that US Treasury Secretary Henry Paulson’s insistence on Tuesday that nothing had changed in the government’s policy towards the dollar was having a limited impact on the US currency.
Rather, analysts said that Fed Chairman Ben Bernanke’s statement last week that a weak dollar was helping to shrink the US trade deficit was holding more sway in the market, as investors took the comment as an embrace of dollar weakness.
“Comments by Paulson and Bernanke show that the US government and the Fed have opposing views about where the dollar should be trading,” said Amikura at Nomura Trust and Banking.
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