The dollar and yen held steady against the euro on Tuesday after the European currency's retreat the previous day as declines in global share prices and increased worries about the financial system fanned aversion to risk. The dollar index, a gauge of its strength against a basket of six other major currencies, hit a three-year high. The yen has crawled back after falling sharply last week as gaps in interest rates between Japan and other countries are expected to narrow. Traders suggested the yen stood to gain a reprieve from last week's fall as investor attention turns to events and data outside of Japan. "The market focus has shifted from Japan to Europe and the United States," said Hideaki Inoue, chief manager of forex trading at Mitsubishi UFJ Trust Bank. "We saw AIG's results and will also get to see data showing the latest economic conditions in the United States. Europe awaits the ECB's rates decision. These factors and events are not expected to favor their currencies," Inoue said. Closely watched U.S. data to be released this week includes the non-manufacturing ISM index on Wednesday and non-farm payrolls on Friday. Market players said the yen was also enjoying a technical rebound after last week's sharp downturn on concerns over the Japanese economy and political malaise, among other factors.

Source