The dollar gained against the yen, holding above its 1995 record low on Tuesday following reminders from Japanese officials about the possibility of more steps to curb yen strength.
The U.S. currency steadied against other currencies, with the euro stuck below $1.40 as market participants pondered how much monetary easing the Federal Reserve would opt for and how much may be priced in to an already weak U.S. currency.
Helping steady the dollar were comments by New York Fed President William Dudley overnight, who said the economic context would determine whether an incremental or big bang approach to asset purchases was better.
The market was also wary about pushing the dollar lower versus the yen due to worries about possible intervention after Japanese Finance Minister Yoshihiko Noda said Japan would take decisive steps on forex when needed.
The dollar was up versus the yen [JPY=X 81.06 0.30 (+0.37%) ], with traders citing talk of Japanese investors buying to take it above reported stop losses at 80.90 and 81.05 yen.
The dollar's record low of 79.75 yen has become a focal point. It hit a 15-year trough at 80.41 yen on Monday, with players wary Japan may intervene if it nears 80.00.
"There has been some verbal intervention to stem the advance of the yen, but it's a case of when not if we get a squeeze back down towards the 80 (yen) area," said Jeremy Stretch, currency strategist at CIBC.
"The dollar is in a bit of a holding pattern. The market is still mulling over the U.S. QE (quantitative easing) story and dollar selling is a bit less of a one-way bet than it was."
The Bank of Japan, which acts on behalf of the Ministry of Finance, intervened on Sep. 15 for the first time since 2004 to sell the yen.
The greenback has fallen broadly since then as the market has priced in more Federal Reserve quantitative easing.
"Everyone thinks intervention is a possibility, that it is an option, but it is hard to say at what level that could occur," said a trader for a foreign bank in Tokyo.
The UK economy grew twice as fast as expected in the third quarter, according to official data. The result dimmed expectations for another round of quantitative easing in the near term and boosted the pound [GBP=X 1.5879 0.0147 (+0.93%) ] against the dollar.
Dollar Steady
The euro [EUR=X 1.3953 -0.0013 (-0.09%) ] dipped against the dollar after failing to close above $1.4000 on Monday and keeping intact a familiar range roughly between $1.3700 and $1.4160 this month.
The euro has support at around 1.3860, its low last Friday and its 21-day moving average at $1.3866.
The dollar [.DXY 77.185 0.08 (+0.1%) ] was up against a basket of currencies. The index has support at 76.00-10 area, just below its Oct. 15 low of 76.144 while resistance is seen at 78.40.
Elsewhere, the Swedish crown eased to 9.2530 crowns per euro from around 9.17 after Sweden's central bank raised rates by 25 basis points as expected, but scaled down its expectations for future policy tightening.
Macro funds had trimmed some of their short dollar positions as they waited to see how the G20 currency debate shaped up, with a question mark after the weekend statement as to whether major currencies such as the euro should adjust upwards as much against the dollar as Asian currencies.
Tensions among G20 partners have muddied the waters for Japan, which is worried yen strength is harming its fragile economy but pledged with its G20 counterparts at the weekend to refrain from competitive currency devaluations.
