Dollar Gains as Traders Trim Bets Against the Greenback

The dollar edged up in thin trade on Wednesday, briefly brushing a two-month high against the yen, as dealers scaled back bets the greenback would slide ahead of an upcoming report on U.S. job growth in April.

The advance added to dollar gains booked a day ago after data showed manufacturing activity in April grew at its quickest pace in nearly a year.

Market participants, though, still expect U.S. interest rates to fall later this year to stimulate a slowing economy, making Wednesday's gains look more like a brief speed bump in the dollar's steady grind lower against its major rivals.

"This is not about changed attitudes toward the dollar or even a reappraisal of the fundamentals but more about tired positioning and a need for a 'healthy' correction," said Divyang Shah, chief strategist at Commonwealth Bank in London.

Traders said the U.S. government's April jobs report due Friday was also prompting investors to reduce risk.

"The euro buying has become a little tired in the $1.36 to $1.3650 zone and we are going to see a consolidation into non-farm payrolls on Friday," said Tim O'Sullivan, trading manager at in Bedminster, New Jersey.

The euro was steady , off last week's record high above $1.3680. It briefly touched 1.3612, a session high, on a report that euro zone finance ministers are not concerned about the currency's strength.

The euro was slightly higher against the yen , testing record highs above 163.30 yen.

The dollar was up against the yen at . Earlier, it climbed to a two-month high at around 120.30 yen.

Sterling was one of the biggest movers on the day, falling 0.4 percent to $1.9904 <GBP=> and sending it below the psychologically important $2.00 level for the first time since mid-April.

Mixed Economic Data

U.S. economic data this week has been mixed, with separate reports on Wednesday showing lower-than-expected private sector job growth in April but higher-than-forecast growth in factory orders in March.

"What we're seeing now is people are paying more attention to the positive data out of the States, whereas just a month ago people were shrugging off any positive data," O'Sullivan

Meanwhile, the market continues to debate how much the U.S. economy is slowing relative to other major economies.

Data on Wednesday showed the euro zone Purchasing Managers' Index held at 55.4 in April, matching March's 13-month low. That was slightly below forecasts but above 50, the point that indicates growth.

The U.S. April manufacturing index from the Institute for Supply Management, released on Tuesday, hit its highest level in almost a year.

But Wednesday's ADP employment report, which measures private sector job growth, suggested the government's data on Friday may undershoot economists' median forecast for a 100,000 rise in payrolls.