The dollar fell against the euro in thin trade Wednesday while the yen remained near seven-week lows as investors continued to fund carry trades by borrowing the low-yielding Japanese currency.
Most European markets remained closed for Christmas, while U.S. stocks edged lower, with investors concerned about how U.S. retailers fared during the holiday shopping season.
"The dollar eased a bit against the yen as stocks opened lower, but the key words are 'a bit,"' said Ron Simpson, senior currency strategist at Action Economics in Tampa, Florida.
"There is very little liquidity out there, so any big price action today I would put down to one-off orders," he said.
Currency traders shrugged off data showing U.S. home prices in October posted their biggest annual drop in the history of the S&P/Case-Shiller index.
While the data suggests a U.S. housing slump is far from over, investors said the report was already two months old and was not a big surprise for financial markets.
In mid-morning trade, the euro rose 0.5 percent to $1.4479, while sterling edged up 0.1 percent to 1.9829.
Overnight, the dollar rose to 114.39 yen, a whisker from a seven-week high hit Monday, before easing to 114.15 yen after Wall Street opened.
The yen fell after minutes from recent Bank of Japan policy meetings revealed officials were worried about high oil prices and the impact of slower U.S. growth on the Japanese economy.
Markets took that as a signal that the central bank will not soon lift its 0.5 percent interest rate -- the lowest in the developed world and the engine of carry trades that use cheaply borrowed yen to buy higher-yielding currencies.
The euro was up 0.5 percent at 165.13 yen.
"Market talk has started to shift from (looking for) a rate hike to a possible rate cut as the Japanese economy softens," Brown Brothers Harriman strategists wrote in a note to clients.
"However, our base case remains that Japan rates stay steady at the current 0.5 percent for much of 2008."
The yen hit a seven-week low against the dollar on Monday after Merrill Lynch said it would shore up its capital by selling $6.2 billion in shares to Singapore's Temasek and asset manager Davis Selected Advisers.
Liquidity injection measures by central banks have also helped to avert a credit crisis and put the market at ease, leading to more carry trade demand, though the impact may be only temporary, analysts said.
"The yen could continue to slide after news of fund injections to financial institutions alleviated fears of further fallout from the credit crisis," said a senior trader at a Japanese bank.
"But this optimism will be tested next week when we see U.S. jobs data and how credit market turmoil is affecting the economy," he added.
Many market players expect the dollar's broad slide to resume next year as worries about credit markets resurface and signs of a U.S. slowdown increase.
The Japanese bank trader said the dollar should move in a 112.50-115.50 range against the yen until the market gets a clear idea about the health of the U.S. economy.