The dollar steadied on Thursday after it enjoyed a rare rally the previous day when U.S. data beat expectations and sparked a bout of short-covering, although the overall mood remains bearish ahead of a key payrolls report.
Against the yen, the dollar was down 0.1 percent on the day at 86.19 yen, having bounced from an eight-month low of 85.32 yen hit on Wednesday.
Traders said the greenback's ability to hold above the psychologically and technically key 85 yen level lightened the risk of dollar/yen dropping to a 15-year low below the November trough at 84.82 yen, at least until the monthly U.S. jobs data, which is seen setting the dollar's near-term direction.
A decline beyond the November milestone could open the way for the greenback to slide to an all-time low below 80 yen, hit 15 years ago, traders said.
Dealers are wary that a tumble to a 15-year low would finally prompt the Ministry of Finance into taking action on the currency's strength, which is hurting Japanese exports, shares and the export-dependent economy.
Players feel they have sold the dollar a bit too much before the U.S. jobs data, and are buying back the currency a little, said a senior trader at a Japanese trust bank.
But the trader said the dollar remained on a downward trend in the longer term, weighed by persistent speculation that the Federal Reserve may further relax its monetary policy to help the U.S. economic recovery which is feared to be losing steam.
Also, the dollar's growing role as a carry trade funding currency points to a further slide.
The dollar index .DXY edged up 0.1 percent to 80.983, putting it back above its 200-day moving average at 80.768. However, it still needs to get past 81.650 to break the bear trend of the past seven weeks, and otherwise risks a fall to its April low of 80.031.
The euro was down 0.1 percent from late U.S. trade at $1.3152, having slid from a three-month peak of $1.3262 struck on Tuesday. Traders reported good support in the $1.3140/50 area and more at $1.3107.
COMMODITY CURRENCIES FIRM
One standout was strength in currencies leveraged to world growth and commodity prices, such as the Australian and Canadian dollars, suggesting a lightening of the recent gloom over the global outlook.
The Canadian dollar extended gains against the greenback, while the Australian dollar dipped but hovered near a three-month high hit the previous day.
The catalyst was an unexpected improvement in the ISM index of the U.S. service sector which nudged up to 54.3 in July, pointing to a faster rate of expansion.
So not only is the services sector -- the vast bulk of most modern economies -- expanding, it is doing so at a faster pace, said Adam Carr, a senior economist at broker ICAP.
That helped to counter talk that the Fed might take further steps into quantitative easing at its policy meeting next week and pulled Treasury yields up from record lows.
Commodities are telling us that this global recovery has reasonable momentum, said Carr, noting iron ore prices had risen around 20 percent in the past month, while copper was up 16 percent and wheat up 40 percent.
That helped to lift the Australian dollar to a three-month high at $0.9184 on Wednesday, while the U.S. dollar slid the previous day to its lowest against the Canadian currency in six weeks at C$1.0163.
On Thursday, the Aussie slipped 0.3 percent to $0.9146. The U.S. dollar was down 0.1 percent to C$1.0170.
Bucking the trend was the New Zealand dollar, which took a spill early on Thursday after local jobless data proved far weaker than expected, prompting markets to scale back expectations for more interest rate rises this year.
The currency sank 1 percent to $0.7282.
The European Central Bank and the Bank of England hold meetings later on Thursday, although no policy changes are expected.
(Additional reporting by Wayne Cole in Sydney; Editing by Edmund Klamann)