By Jamie McGeever
NEW YORK, March 8 (Reuters) - The dollar slipped against major currencies on Wednesday, but held within tight ranges, consolidating the previous session's gains as traders awaited several potentially market-moving events later in the week.
The Bank of Japan may scrap its easy-money policy on Thursday while U.S. trade data could show a further widening of the deficit. The U.S. employment report on Friday is expected to show strong job creation.
Most of the foreign exchange market action on Wednesday was concentrated in emerging market currencies, many of which tumbled as concerns over rising global interest rates sparked moves out of higher-yielding, riskier assets.
"There's been a lot of volatility in emerging markets but in the majors, very little," said Robert Lynch, G10 currency strategist for the Americas at HSBC in New York.
"The dollar's off its highs, but in relative terms it's holding at fairly firm levels. I wouldn't call it offered," Lynch said.
The dollar rallied strongly earlier this week amid growing expectations U.S. interest rates will continue to rise in the coming months.
Ahead of events later in the week, dealers took advantage of a session devoid of U.S. economic data to trim positions and lock in some profits, dealers said.
In late trading on Wednesday, the euro was up 0.3 percent on the day at $1.1922
The dollar was off 0.4 percent against the Swiss franc at 1.3082 francs
BOJ IN FOCUS
But the dollar held relatively close to two-week highs against the Japanese currency touched on Tuesday. Traders were looking to the possible end of the BOJ's policy of quantitative easing, or flooding the monetary system with excess cash.
Investors are divided about whether the central bank will scrap its five-year-old policy on Thursday or next month and, if so, what kind of policy target would follow.
Markets see the BOJ raising rates to 0.25 percent or 0.5 percent by year-end from virtually zero currently, but do not expect much more than that, which would keep the yen among the lowest-yielding currencies in the world.
The BOJ has held interest rates below 0.5 percent since 1995.
Steve Barrow, head of global currency strategy at Bear Stearns, thinks the bias for the dollar against the yen is to the upside no matter what the BOJ does. But given the potential for market volatility, he advised caution.
"We are not going to take a position ahead of the BOJ. Our bias would be to be long of the dollar as we are not sold on the idea that the (BOJ) will do anything tonight given that the debate about an inflation target within the bank might not be fully resolved," Barrow wrote in a research note.
"Alternatively, if the BOJ does move, we suspect it will work hard to ensure that the market sees its actions as pretty benign. It might be a tough job as the market is very nervous about this one, but it might produce a temporary rally in dollar/yen," he added.
On the U.S. data front, the latest snapshots of the U.S. trade deficit and pace of job creation are the big events.
Economists polled by Reuters expect the January trade deficit to have widened to $66.5 billion, which would be the second biggest on record. They also expect a 210,000 rise in non-farm payrolls for February.
Meanwhile, major currencies remained relatively immune to the fluctuations in emerging markets and commodities.
The Brazilian real
The New Zealand dollar
The "kiwi" dollar was up 0.6 percent on the day at $0.6520, rebounding from 18-month lows earlier this week.
Source: http://today.reuters.co.uk/investing/financeArticle.aspx?type=usDollarRpt&storyID=2006-03-08T214449Z_01_N08226536_RTRIDST_0_MARKETS-FOREX-UPDATE-9.XML
