The U.S. dollar retreated into the upper 103 yen zone in Tokyo on Tuesday as traders locked in gains amid a dearth of fresh incentives, taking a breather from the U.S. currency's rally of the past few days on positive U.S. economic indicators and signs of a hawkish Federal Reserve.
At 5 p.m., the dollar fetched 103.88-90 yen compared with 104.00-10 yen in New York and 104.12-14 yen in Tokyo at 5 p.m. Monday. It moved between 103.75 yen and 104.12 yen during the day, changing hands most frequently at 103.89 yen.
The euro was quoted at $1.3193-3194 and 137.05-09 yen against $1.3187-3197 and 137.19-29 yen in New York and $1.3186-3191 and 137.32-36 yen in Tokyo late Monday afternoon.
Having continued its gradual upward momentum from New York overnight in early trading, the dollar slipped back under 104 yen in the morning before stabilizing in the upper 103 yen zone for the rest of the day.
With no fresh news affecting the dollar-yen pair in Tokyo time, traders sold the U.S. currency against the yen to lock in gains, convinced by technical indicators that the dollar was slightly overvalued, said Toshiyuki Suzuki, senior market economist at the Bank of Tokyo-Mitsubishi UFJ.
But the dollar is still on an upward trend in the longer term as "the policy outlooks of the Fed, Bank of Japan and (European Central Bank) are now looking fairly clear-cut, with an interest rate hike by the Fed thought forthcoming, and the Japan-U.S. interest rate gap set to widen," Suzuki said.
The U.S. currency had rallied on a number of factors since clearing the upper 102 yen zone in Tokyo last Wednesday. Minutes of the Federal Open Market Committee's July meeting showed a more hawkish attitude among policymakers than widely expected, echoed in Fed Chair Janet Yellen's speech on the labor market last Friday.
U.S. data due later in the day could help buoy the dollar in New York, with July's durable goods orders and August's consumer confidence data likely to show a broad recovery in the economy.
The specter of the Ukraine crisis reemerged as an influence on currency markets on the eve of talks between Russian President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko observed by European Union officials in Belarus, said Yuzo Sakai, manager of foreign exchange business promotion at Tokyo Forex & Ueda Harlow.
"Caution ahead of the talks probably added some fuel to the morning's yen buying, and if the talks aren't productive and concerns heighten over Ukraine the yen could be bought against the dollar and euro amid a flight to safe assets, Sakai said.
The euro remained near an 11-month low against the dollar while moving little against the yen. The Ifo Institute's business climate index released overnight showed flagging sentiment among Germany's major firms in August.
"Eurozone consumer prices out this Friday are widely expected to show a slowdown in inflation, and traders will be paying close attention to the ECB's next policy meeting next week for hints about the kind of antideflationary easing the bank might carry out," Suzuki said.