The U.S. dollar inched higher against the yen on Wednesday but struggled to make progress against the euro as investors awaited minutes from the Federal Reserve's latest meeting and U.S. jobs data later in the week.
The dollar rose 0.3 percent to trade at 113.59 yen, its highest level in nearly two months. Against the euro, the greenback was broadly flat at $1.13530.
"Latest Fed communication suggests US monetary authorities are willing to look through currently weak inflation data," Morgan Stanley analysts said in a note recommending selling the yen and Australian and New Zealand dollars against their U.S. counterpart.
"It may not be only the Fed providing the USD with a lift. June labor market data starting with the release of the ADP report tomorrow, completed by Friday’s NFP, could start turning the U.S. surprise indicator around."
The yen tends to be bought back at times of heightened global uncertainty because of expectations Japanese investors may repatriate their foreign investment, despite the country's proximity to North Korea.
Pyongyang said on Wednesday it had conducted a test of a newly developed intercontinental ballistic missile (ICBM) that can carry a large and heavy nuclear warhead. That triggered a call by Washington for global action to hold the isolated nation accountable for its pursuit of nuclear weapons.
With very little in the way of big U.S. economic data in the coming days, the release of the June 14 Fed minutes will dominate the next 24 hours. Investors will look for clues on the likely outlook of the balance sheet reduction.
In other currencies, sterling languished at one-week lows on Wednesday as investors reduced positions amid growing evidence the economy was facing headwinds.
"The pressure will remain on the sterling in the short term as the downside risks have intensified and in that backdrop the recent hawkishness by central bank officials may not be justified," said Bank of New York Mellon strategist Neil Mellor.
Data earlier this week offered more evidence of softness in the UK economy with a purchasing managers' index (PMI) survey showing activity falling to 54.8 in June. That was still above the 50 level that denotes growth but down from May's 18-month high of 56.0 and slightly below the median forecast of a Reuters poll.
On Tuesday, a Bank of England policymaker who last month voted to raise interest rates was quoted as saying on Tuesday that he was "reasonably confident" that investment and exports would compensate for a consumer slowdown.
Last week, Governor Mark Carney said a rise in rates was likely to be needed as the economy comes closer to running at full capacity and the BoE would debate when to do so "in the coming months".
That prompted the sterling to post its best weekly performance in eight months last week.
-Reuters
