The dollar temporarily strengthened through the 1.18 level against the Euro on Friday, but was unable to hold the gains and the US currency weakened back to 1.19 in Asian trading on Tuesday before holding around 1.1875.

The Fed minutes from the December FOMC meeting, due for release on Tuesday, will also be very important for interest rate expectations and the US currency with markets looking for further evidence on the Fed’s first-quarter policy intentions. The combination of Fed minutes and payroll report will tend to set the dollar tone for January as a whole. The dollar will gain initial support if there is a relatively tough stance by the Fed in the minutes, although the US currency will find it more difficult to secure strong sustained interest given speculation that the rate cycle is close to completion.

Markets will also remain on alert for ECB interest rate comments following recent suggestions that the bank will look to increase interest rates again early in 2006. The reports suggest that there was a further decline in seasonally-adjusted unemployment for December of close to 100,000 while the PMI index for the Euro-zone edged stronger to 53.6 in December from 52.8 in November, maintaining the run of firm Euro-zone data.