London, January 3:

The dollar rebounded against the euro and yen on Wednesday before the release of key US economic data and the start of 2007 currency trading in New York, dealers said.

The euro slid to 1.3254 dollars from 1.3275 dollars late on Tuesday. The dollar advanced to 119.14 yen from 118.81 yen late on Tuesday. On Tuesday, the euro had struck a near three-week high against the dollar. Meanwhile on Wednesday, the European single currency jumped to fresh historic levels of 157.93 yen and 1.6154 Swiss francs.

Dealers said the euro’s recent strong run was due to rising expectations that the European Central Bank will continue to hike interest rates during 2007.

“Essentially, the European currencies traded with a stronger tone against the US dollar, and the higher-yielding currencies continued to gain relative to the lower-yielding currencies,” UOB Economic-Treasury Research said in a note to clients on Wednesday. Trading in New York was set to resume later Wednesday after US markets had remained shut Tuesday to mark the recent passing of US former president Gerald Ford.

Foreign exchange market participants were awaiting Wednesday’s release of the US Institute of Supply Management (ISM) manufacturing data for December.

“In case of sufficiently weak US data, a test of the resistance area at 1.3350 in euro/dollar is possible,” Commerzbank analyst Gavin Friend said.

Wednesday also sees publication of the minutes from the last Federal Reserve’s interest-rate setting meeting on December 12. The Fed has kept its key fed funds short term interest rate pegged at 5.25 per cent since August, which has given momentum to the European currency.

Recent data in Japan has meanwhile dampened expectations of another rate hike there. Japanese and Chinese markets remained closed Wednesday for New Year celebrations.

During the course of 2006, the euro gained 11.4 per cent against the dollar, 12.0 per cent against the yen and 2.7 per cent against the Swiss franc.

Analysts believe the principal driver of the foreign exchange market last year had been differences in interest rates across economic zones.

The euro was changing hands at 1.3254 dollars against 1.3275 dollars on Tuesday, 157.93 yen (157.74), 0.6727 pounds (0.6725) and 1.6141 Swiss francs (1.6106). The dollar stood at 119.14 yen (118.81) and 1.2178 Swiss francs (1.2131).

The pound was being traded at 1.9699 dollars (1.9736).