Dollar holds gains

The dollar held gains on Friday, staying off a two-month low against the euro and a 26-year trough versus sterling after strong US services data soothed concerns the Federal Reserve may cut interest rates later this year. The dollar rose broadly the previous day after the Institute for Supply Management's services index for June rose to its highest level in a year, beating forecasts for a small decline.
Investors awaited high-profile US payrolls data due later in the session for more clues about the future path of the Fed's monetary policy. "The dollar is likely to rise, especially against the yen, if figures in the US jobs report are strong," said Tsutomu Soma, a senior manager at Okasan Securities. The dollar stood at 123.15 yen up 0.15 percent from the previous day's late New York trade and not far from its 4-1/2-year high of 124.14 yen hit in late June.
The euro was little changed from late US trade at $1.3595 off a two-month high of $1.3660 hit the previous day and an all-time peak of $1.3683 reached in late April.
The dollar was under pressure earlier this week on worries about weakness in the housing market and subprime mortgage woes, as well as security concerns ahead of Wednesday's Independence Day holiday.
Traders said the dollar was poised for more upward correction, as data released so far this week showed signs of economic strength, boosting expectations that the Fed will leave the benchmark funds rate at 5.25 percent for some time.
The yen suffered against high-yielding currencies with prospects for further rate hikes as investors took advantage of low volatility in teel comfortable about selling the yen as long as the BOJ keeps the pace in its rate tightening gradual," said a trader at a big Japanese bank.
The central bank last boosted rates in February. The euro rose against the yen as high as 167.47 yen on electronic trading platform EBS, the highest level since the single European currency's launch in 1999.
The European Central Bank left interest rates on hold at 4 percent the previous day, as expected. At the same time, the central bank suggested it would tighten rates in the coming months to fight inflation. Sterling eased slightly to $2.0105 after touching $2.0208 on Reuters dealing system on Wednesday, its highest level since 1981.